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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE CELERA CORPORATION )
Civil Action No. 6304-VCP
Submitted: December 2, 2011
Decided: March 23, 2012
Stuart M. Grant, Esq., Michael J. Barry, Esq., John C. Kairis, Esq., GRANT &
EISENHOFER P.A., Wilmington, Delaware; William H. Narwold, Esq., MOTLEY
RICE LLC, Hartford, Connecticut; Marlon E. Kimpson, Esq., William S. Norton, Esq., J.
Brandon Walker, Esq., MOTLEY RICE LLC, Mt. Pleasant, South Carolina; Gerald Silk,
Esq., Mark Lebovitch, Esq., Bruce Bernstein, Esq., Brett M. Middleton, Esq., Jeremy
Friedman, Esq., BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York,
New York; Plaintiffs’ Co-Lead Counsel.
Kevin G. Abrams, Esq., Nathan A. Cook, Esq., ABRAMS & BAYLISS LLP,
Wilmington, Delaware; Patrick E. Gibbs, Esq., Andrew M. Farthing, LATHAM &
WATKINS LLP, Menlo Park, California; Attorneys for Defendants Richard H. Ayers,
Jean-Luc Belingard, William G. Green, Peter Barton Hutt, Kathy Ordoñez, Wayne I.
Roe, Bennett M. Shapiro, and Celera Corporation.
Gregory P. Williams, Esq., Kevin M. Gallagher, Esq., RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware; Alan S. Goudiss, Esq., Brian H. Polovoy, Esq.,
SHEARMAN & STERLING LLP, New York, New York; Attorneys for Defendants
Quest Diagnostics Incorporated and Sparks Acquisition Corporation.
Bruce Silverstein, Esq., Martin S. Lessner, Esq., Richard J. Thomas, Esq., Emily Burton,
Esq., YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware;
Thomas J. Fleming, Esq., Adam W. Finerman, Esq., Jennifer L. Heil, Esq., Jason W.
Soncini, Esq., OLSHAN GRUNDMAN FROME ROSENZEWEIG & WOLOSKY LLP,
New York, New York; Attorneys for BVF Partners L.P.
PARSONS, Vice Chancellor.
This putative class action is before me on an application for the approval of a
settlement of the class‘s claims for, among other things, breaches of fiduciary duty in
connection with a merger of two publicly traded Delaware corporations. The merger was
completed a number of months ago. The target‘s largest stockholder, which acquired the
vast majority of its shares after the challenged transaction was announced, strenuously
objects to the proposed settlement.
In addition, the defendants‘ and the plaintiffs‘
counsel disagree about the appropriate level of attorneys‘ fees that should be awarded.
Plaintiffs‘ counsel seek a fee of $3.5 million plus expenses, while the defendants seek to
limit any award of fees to less than $1 million.
The putative lead plaintiff, New Orleans Employees‘ Retirement System
(―NOERS‖), accused various defendants of breaching their fiduciary duties in connection
with the acquisition of Celera Corp. (―Celera‖ or the ―Company‖) by Quest Diagnostics
Inc. (―Quest‖). The acquisition was structured in two tiers of, first, a tender offer by
Quest for any and all shares of Celera at $8.00 per share and, second, a back-end
squeeze-out merger at the same price (the ―Merger‖). Celera also provided Quest a topup option, which permitted Quest to effect the back-end merger under 8 Del. C. § 253
without a shareholder vote. Approximately a month after NOERS filed its complaint and
amidst briefing on a motion for a preliminary injunction, the parties entered into a
Memorandum of Understanding (the ―MOU‖), conditionally settling the parties‘ dispute
for therapeutic benefits but no increase in the Merger price. Thereafter, the tender offer
succeeded, Quest exercised its top-up option, and the Merger closed.
After the tender offer succeeded but before the remaining shareholders were
cashed out in a short-form merger, NOERS sold its shares on the secondary market at a
slight premium to the Merger price. Hence, NOERS was not among the shareholders
involuntarily cashed out when the Merger closed. The MOU, however, conditioned the
settlement on confirmatory discovery, permitting NOERS to rescind the MOU and
continue litigating on behalf of the class if it reevaluated the strength of those claims or
the fairness of the settlement‘s terms. Celera‘s largest shareholder, BVF Partners L.P.
(―BVF‖), now argues forcefully that NOERS is neither a typical nor an adequate class
representative because it is uniquely susceptible to the defense of acquiescence and
suffered no transactional damages because it sold at a premium. Thus, BVF argues that
NOERS lacked the economic incentive to conduct meaningful confirmatory discovery or
to rescind the MOU had it uncovered facts undermining the settlement‘s fairness. As
previously alluded to, BVF also objects to the merits of the proposed settlement because
it claims to have uncovered an entitlement to monetary relief in which NOERS cannot
The class action mechanism originated in equity practice and is particularly
important to the substantive law of corporations as a mechanism to address collective
action problems. Accordingly, the Court of Chancery has an institutional interest in
ensuring that mechanism functions effectively and efficiently at all times. Among other
things, it depends on lead plaintiffs who take seriously the implications of representing
others in the vindication of their legal rights. NOERS‘s careless and cavalier sale of all
of its stock in Celera a few days before the short-form merger was effected definitely
calls into question its suitability to serve as a class representative. Indeed, three recent
decisions by members of this Court suggest that, at least as a prophylactic measure
against similarly substandard behavior by future class representatives, NOERS deserves
to be dismissed summarily for selling its shares.1 In view of the significant waste of the
Court‘s and the parties‘ resources caused by this unnecessary side issue, I probably will
start from that premise in the future. Nevertheless, after careful consideration of the facts
and circumstances of this case and the relevant precedents, I have concluded that,
notwithstanding its questionable conduct, NOERS still satisfies, if only barely, the
requirements for an appropriate class representative.
Therefore, for the reasons stated in this Opinion, I certify the class with NOERS as
class representative, approve the settlement as fair and reasonable, and award attorneys‘
fees to class counsel, albeit in an amount well below what they requested.
NOERS filed this class action on behalf of itself and all similarly situated
shareholders of Celera (―Plaintiffs‖) to challenge the Merger as a breach of fiduciary duty
by eleven defendants.
Defendant Celera is a healthcare business focusing on the integration of genetic
testing into routine clinical care through a combination of products and services
Steinhardt v. Howard-Anderson, 2012 WL 29340 (Del. Ch. Jan. 6, 2012); In re Labarage
Inc. S’holders Litig., C.A. No. 6368-VCN (Del. Ch. Jan. 3, 2012) (TRANSCRIPT); In re
J. Crew Gp., Inc. S’holders Litig., C.A. No. 6043-CS (Del. Ch. Dec. 14, 2011)
incorporating proprietary discoveries. Celera is a Delaware corporation with its principal
place of business in Alameda, California.
Before the Merger with Quest, Celera‘s
common stock publicly traded on the NASDAQ Stock Market. As of February 2011,
Celera had over 82 million common shares outstanding and several thousand holders of
Celera‘s board of directors comprised the following individuals, each of whom
also is a Defendant in this action: Richard H. Ayers, Jean-Luc Belingard, William G.
Green, Peter Barton Hutt, Gail K. Naughton, Kathy Ordoñez, Wayne I. Roe, and Bennett
M. Shapiro (collectively, the ―Board‖). In addition to her role as a director, Ordoñez has
served as Celera‘s CEO since February 2008.
Defendant Quest is a leading provider of diagnostic testing, information, and other
healthcare services to patients and doctors. Quest is a Delaware corporation with its
principal place of business in Madison, New Jersey. Its stock trades on the New York
Defendant Spark Acquisition Corporation (―Spark‖) is a wholly-owned subsidiary
of Quest formed for the purpose of acquiring Celera. Unless the context otherwise
requires, I refer to Quest and Spark interchangeably herein as ―Quest.‖
Celera Corp., Annual Report (Form 10-K), at 1, 54 (Mar. 18, 2011).
Each of the SEC filings cited in this Opinion was attached to one or more pleadings,
affidavits, or other documents filed with the Court and, thus, constitutes part of the record
the parties created in this action. For ease of reference, however, I cite to the SEC filings
themselves, which are accessible online from the SEC‘s Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system.
Before the Merger closed, BVF was Celera‘s largest shareholder; it ultimately held
between 19.3 and 20.1 million of Celera‘s approximately 82 million shares, nearly a
quarter of the Company.3 At the Merger price, the value of BVF‘s equity interest
exceeds $154 million. BVF objects to appointing NOERS as the class representative
under Rule 23(a), certifying the class without opt out rights under Rule 23(b), and
approving the fairness of the proposed settlement on its merits.
Facts and Procedural History
Background to the Merger
Celera has three primary business units: (1) lab services, which mainly provide
genetic testing; (2) products, which sell FDA-approved testing kits; and (3) corporate,
which holds intellectual property and royalty rights for drug compounds under
development by third parties, including a cathepsin K inhibitor, odanacatib (―Cat-K‖), a
promising osteoporosis drug in phase III FDA trials. In November 2009, the Board
began to consider strategic transactions. On February 3 and 4, 2010, the Board directed
senior management and its financial advisor, Credit Suisse Securities (USA) LLC
(―Credit Suisse‖), to engage in targeted discussions with potential counterparties to a sale
of the individual drug assets or business segments of the Company or the entire
Celera Corp., Beneficial Owner Report (Schedule 13D), at 10 (May 13, 2011) (disclosing
BVF‘s beneficial ownership of over 20.1 million shares, or 24.5% of the Company);
Letter from Richard J. Thomas, Esq. to V.C. Parsons, Docket Item (―D.I.‖) No. 93, at 1
(Aug. 10, 2011) (asserting ownership of 19.3 million shares, or 23.5%).
Company.4 In exchange for Credit Suisse‘s services, the Company agreed to pay (1) an
upfront fee of $250,000, (2) $1 million to prepare a fairness opinion if Credit Suisse‘s
efforts resulted in a sale of 50% or more of the Company, and (3) 1.3% of the total
transaction value of any such deal. This contingent compensation structure ultimately
entitled Credit Suisse to a fee of $8.8 million when the Merger closed. According to
BVF, it also caused Credit Suisse to become ―singularly focused on a sale of the entire
Company and continuously [to] discourage the Board from pursuing alternative
Credit Suisse and Ordoñez contacted nine potential bidders, five of which
performed at least some measure of due diligence on the Company by April 2010: (1)
Illumina, Inc.; (2) Inverness Medical Innovations, Inc.; (3) Laboratory Corporation of
America Holdings; (4) Qiagen, N.V.; and (5) Quest. All five of these companies entered
into confidentiality agreements with the Company that, among other things, expressly
prohibited them from making offers for Celera shares without an express invitation from
Moreover, the confidentiality agreements contained a broadly worded
provision preventing the signing parties from asking the Board to waive this restriction
(the ―Don‘t-Ask-Don‘t-Waive Standstills‖).6
Celera Corp., Recommendation Statement (Schedule 14D-9), at 13 (Mar. 28, 2011)
[hereinafter Recommendation Statement].
BVF‘s Ans. Br. 8.
See, e.g., Pl.‘s Prelim. Inj. Br. App. Ex. 42, at CRA0005943-44 (Don‘t-Ask-Don‘t-Waive
Standstill Agreement signed by Inverness Medical Innovations, Inc.).
In mid-April 2010, Quest submitted a nonbinding preliminary offer to acquire
Celera for $10.00 per share in cash. Quest, however, conditioned its offer upon the
execution of employment agreements with the Company‘s key personnel, including
Ordoñez. Celera also received lesser offers from other parties, and one indication of
interest from ―Bidder C,‖ which had not been contacted by Credit Suisse, to acquire only
Celera‘s products division. On May 25, 2010, the Board appointed a special committee
to manage and oversee the transaction process, with the Board retaining authority to
make all major decisions. After negotiations with the special committee and further due
diligence, Quest increased its offer to $10.25 per share on June 25. Finding that offer
acceptable, the special committee then authorized Ordoñez to negotiate her separate
employment agreement with Quest.
On June 29, 2010, Ordoñez met with representatives of Quest regarding her
prospective employment agreement. At that time, one item she and Quest disagreed over
was a one-time $3.4 million change-of-control payment.
Ordoñez and the Quest
representatives also discussed a then-unpublished, negative study of a gene variant called
KIF6, which is a risk marker for heart disease. Celera had developed a test kit to identify
patients with the KIF6 genotype, but the negative study created substantial risk regarding
the future profitability of those test kits. Ordoñez knew about the the study but did not
know if it would be published. The next day, Quest withdrew from the merger citing
both the potential effects of the KIF6 study and ―concerns regarding retention of the
Company‘s management following consummation of the proposed transaction.‖7 The
Board continued to seek strategic transactions throughout the rest of 2010, but no serious
suitors emerged. Also during this period, Celera‘s business was deteriorating, due in part
to the publication of the negative KIF6 study in October.
In January 2011, both the other members of the Board and the Company‘s
shareholders were expressing at least some measure of dissatisfaction with Ordoñez‘s
performance. Worse still, the Company‘s independent public accountant notified it of
irregularities in previous public financial statements and the possible need for a financial
restatement. Both NOERS and BVF contend that these developments motivated Ordoñez
to consummate a sale of the Company. Defendants deny that characterization, arguing
that the Company did not conclude a financial restatement was necessary until months
later and that NOERS and BVF have overstated the Board‘s tepid, constructive criticism
of Ordoñez‘s performance. In any event, on January 27, 2011, Quest offered $7.75 per
share to acquire the Company.
Negotiations among the principals occurred in February 2011.8 First, on February
3, the Board rejected an offer from Bidder C to acquire Celera‘s products division for
$125 to $145 million and determined, instead, to focus on negotiations with Quest.
Recommendation Statement at 17. BVF alleges ―Ordoñez‘s unreasonable employment
demands‖ torpedoed the deal in June 2010. BVF‘s Ans. Br. 13.
BVF asserts that negotiations occurred almost exclusively between Quest‘s CEO, Dr.
Surya Mohapatra, and Ordoñez, whereas Defendants claim that Credit Suisse or the
special committee conducted these negotiations. NOERS avers that agreement was
reached ―[a]fter minimal price negotiations.‖ Pls.‘ Op. Br. 6.
Second, BVF had informed Ordoñez that it would try to block any transaction unless the
Company‘s drug assets were sold separately or the deal provided some way for
shareholders to participate in any future value attributable to those assets, especially if
Cat-K reached market. Celera relayed these alternative deal terms to Quest in midFebruary, but Quest refused to consider either of them. Rather than press harder, Celera
made a counteroffer to sell the Company for $8.25 per share without carving out the drug
assets or providing for any contingent value rights.9 On February 17, however, Quest
made its ―best and final‖ offer of $8.00 per share, or a total transaction size of over $680
Shortly thereafter, the Board unanimously approved the $8.00 price and
authorized management and the Company‘s legal counsel to finalize definitive
transaction agreements with Quest.
As in 2010, Quest conditioned its offer on, among other things, reaching a
satisfactory employment agreement with Ordoñez. Unlike in 2010, however, Quest and
Ordoñez agreed to a three-year contract with an annual base salary of $500,000, an
annual bonus opportunity of 60% of her base salary, a one-time cash payment of about
$2.3 million, and other benefits. BVF argues that this employment package was worth at
least double the initial employment package offered by Quest in June 2010.
According to BVF, ―Ordoñez became concerned that [negotiating harder on this point]
would slow down the deal and acted quickly to end discussions on the issue.‖ BVF‘s
Ans. Br. 18.
Celera Corp., Tender Offer Statement (Schedule TO), at 1 (Mar. 18, 2011). The
corresponding enterprise value was less. Celera had over $327 million in cash, $117
million in tax credits, and no debt on its books. Thus, the implied value of Celera‘s
operating assets reflected in Quest‘s offer arguably is closer to $236 million.
Although the Company‘s independent accountants still questioned whether a
financial restatement was necessary, the Board decided on March 14, 2011 to restate its
financials at the same time it announced the Merger. On March 17, the Board met to
consider final approval of the proposed acquisition. In addition, Credit Suisse rendered
its oral opinion, later confirmed in writing, that anything within the range of $6.78 to
$8.55 per share would reflect a fair price to acquire the Company and, therefore, Quest‘s
offer of $8.00 per share was fair to the public stockholders.
The fairness opinion and the underlying financial analysis performed by Credit
Suisse constitute a significant aspect of this case. To value Celera, Credit Suisse needed,
among other things, to value the Company‘s drug assets still in development. That
required Credit Suisse to make various assumptions about the probabilities of each drug
receiving FDA approval and reaching the market. Numerous empirical studies exist
describing the probabilities of particular drugs reaching market given their current stage
of development. Beginning in December 2010, Credit Suisse adopted the results of a
Tufts study published in 2002 by the Milken Institute (the ―Tufts Study‖) to probabilityadjust Celera‘s drug assets. The Tufts Study reported the following probabilities of a
drug reaching market from a given stage of development: phase I (20%); phase II (30%);
phase III (67%); final application for FDA approval (81%). Credit Suisse, however,
incorrectly believed that they reflected the probability of a drug merely advancing from
one stage of development to the next. Thus, for example, whereas Credit Suisse should
have assumed a 20% probability of success rate for a drug in phase I reaching market, it
used a much lower 3% in its valuation, i.e., the cumulative product of each stage‘s
probability of success rate (i.e., 3% ≈ 20% x 30% x 67% x 81%).11
These probability-adjustment errors were not discovered until after the parties
entered into the MOU. Furthermore, BVF alleges that they may have undervalued the
Company by $0.63 to $0.86 per share.12 After making adjustments to account for a
handful of other errors or questionable assumptions by Credit Suisse, BVF asserts that the
fair range to acquire Celera may have been $8.15 to $10.21 per share, entirely above
Quest‘s $8.00 offer.
BVF argues that Credit Suisse made these errors because its
contingent compensation agreement incentivized it to favor a sale at any price, and the
Board knowingly accepted the errors because they too had self-interested reasons to see
Defendants concede that Credit Suisse erred, but contend the error was harmless.
As the Company disclosed in its Recommendation Statement in favor of the Merger,
Credit Suisse‘s fairness range encompassed a low end in which none of Celera‘s drug
assets generated cash flow and a high end that assumed some possibility of success.
See Thomas Aff., D.I. No. 149 Ex. 50, at 6 (As reported by the Tufts Study: ―Average
success rates (the chances of reaching the market eventually) are [the rates identified
above] . . . (e.g., about two out of three drugs in phase III trials will eventually reach the
market).‖ (emphasis added)).
This allegation is overstated. BVF calculated Credit Suisse‘s valuation errors by, among
other things, applying even higher probability of success rates than those prescribed by
the Tufts Study and including the value of one particular drug asset, HDAC sarcoma, that
Credit Suisse disclosed it had excluded. See Thomas Aff., D.I. No. 130 Ex. 71, at 3, 5-6,
8. While there may be justifiable reasons to question the reliability of the Tufts Study or
the exclusion of HDAC sarcoma, those reasons do not speak to the magnitude of Credit
Suisse‘s valuation errors caused by its misapprehension of the Tufts Study.
Thus, while Credit Suisse‘s errors may have truncated the range‘s upper bounds, those
errors did not undermine Credit Suisse‘s expert opinion that a price as low as $6.78 per
share would reflect fair consideration.
On March 17, 2011, the Board concluded that accepting Quest‘s offer of $8 per
share was fair and in the best interests of the Company and its shareholders. Indeed, the
offer reflected a premium of approximately 28% over the $6.27 closing price of Celera‘s
common stock on March 17. Accordingly, the Board executed the definitive transaction
agreements its counsel had been negotiating since February (the ―Merger Agreement‖).
The following day, March 18, Celera and Quest jointly announced to the market both the
Merger Agreement and Celera‘s need to restate its financials for 2008, 2009, and the first
three quarters of 2010.
The terms of the Merger Agreement
The Merger Agreement contemplated a reverse triangular merger between Celera
and Quest‘s acquisition subsidiary, Spark, structured in two tiers.13 On the front end,
Spark would commence a twenty-one-day tender offer for any and all shares of Celera
common stock at $8 per share. Spark was required to extend its offer as necessary until it
acquired voting control of the Company (the ―Minimum Condition‖). Once it achieved
the Minimum Condition, Spark could commence a ―subsequent offering period‖ of no
more than twenty days to reach up to 90% of Celera‘s voting control. On the back end,
assuming satisfaction of the Minimum Condition, Spark would cause itself and the
See generally Celera Corp., Current Report (Form 8-K) Ex. 2.1 (Mar. 18, 2011)
[hereinafter Merger Agreement].
Company to merge, with Celera as the surviving corporation. If Spark held over 90% of
Celera‘s voting stock, it could effect that merger under 8 Del. C. § 253 without Celera
holding a shareholder vote. In either case, however, the back-end merger would cash out
any remaining Celera shareholders, also at $8 per share. Consequently, Celera would
become a wholly-owned subsidiary of Quest.
To protect Quest‘s interests, the Merger Agreement provided a number of deal
protection devices, three of which are relevant to this action.14 First, it required Celera to
pay Quest $23.45 million if, among other possibilities, the Company terminated the
Merger Agreement and accepted a competing offer (the ―Termination Fee‖). The size of
the Termination Fee represented approximately 3.5% of the total $680 million transaction
size, but arguably as much as 10% of Celera‘s enterprise value.15
Second, the Board agreed to terminate any existing discussions with, and not to
solicit competing offers from, potential bidders other than Quest (the ―No Solicitation
Provision‖). Plaintiffs argue that this deal protection measure was especially onerous in
Celera‘s case because the most likely competing bidders were the companies already
bound by the Don‘t-Ask-Don‘t-Waive Standstills. That is, Celera could not reach out to
the companies it already knew were interested, and those companies could not reach out
In addition to protecting Quest‘s interests, the Merger Agreement indemnified the Board
and the Company‘s officers from any liability, including in relation to the financial
restatements, for at least six years. Id. § 6.8. Plaintiffs initially stressed this
indemnification provision as evidence of self-interest by the entire Board. See Consol.
Am. Compl. ¶ 1. Since the pleadings stage, however, neither NOERS nor BVF has
argued that the Board, except for Ordoñez, was interested in the Merger.
See supra note 10.
to Celera to take the necessary first step—requesting a waiver of the standstill
restrictions—to make a competing offer.
Third, Spark received an irrevocable option (the ―Top-Up Option‖), exercisable
only if Spark attained over 60% of Celera‘s voting power in the tender offer, to acquire as
many of the Company‘s authorized but unissued shares as necessary for Spark to exceed,
on a fully diluted basis, 90% of Celera‘s voting stock.16 In that event, Spark could
expedite the closing process with a short-form merger.
This litigation and settlement
BVF immediately and emphatically disagreed with the adequacy of the Merger
price. On March 18, 2011 alone, the day the Merger Agreement was announced, BVF
nearly doubled its interest from 6.6% to 12% of the Company. On March 30, it sent an
open letter to Mohapatra, expressing its belief that $8 per share undervalued the
Company and informing Quest that it would not tender, would seek out competing bids,
and would exercise its appraisal rights unless the deal were restructured. Mohapatra
replied publicly that $8 per share continued to reflect Quest‘s best and final offer. Before
the Merger closed, BVF doubled its interest again, holding perhaps as much as 24.5% of
Celera‘s then-outstanding shares by May 11, 2011.17
Top-up options may be lawful so long as the option holder first possesses voting control,
usually one share more than 50%. See generally Olson v. ev3, Inc., 2011 WL 704409, at
*1-3 (Del. Ch. Feb. 21, 2011). The Top-Up Option here employed a higher 60%
threshold apparently based on the fact that Celera was authorized to issue only 300
million shares and had approximately 82 million shares outstanding.
Although it had threatened to seek appraisal, BVF did not perfect its appraisal rights.
NOERS took a different approach. On March 22, 2011, it filed a class action
complaint and moved contemporaneously for expedited proceedings and a preliminary
injunction.18 On March 28, this Court entered a stipulated scheduling order, setting a
hearing on NOERS‘s preliminary injunction motion for April 20. Also on March 28,
Spark commenced the front-end tender offer and the Board filed a Recommendation
Statement with the SEC encouraging shareholders to tender.
As prescribed by the
Merger Agreement, the tender offer was scheduled to expire twenty-one business days
later on April 25. Between March 29 and April 14, Plaintiffs‘ counsel in this action
received documentary discovery, deposed eight fact witnesses, and filed an opening brief
in support of their motion for a preliminary injunction. Defendants filed their answering
brief on April 17. The following day, informed by the discovery process and their
respective preliminary injunction briefs, the parties entered into the MOU, conditionally
settling this case. Also on April 18, they disclosed the MOU in a public filing with the
Defendants agreed in the MOU to the following therapeutic benefits: (1) reduction
of the Termination Fee from $23.45 million to $15.6 million; (2) modification of the No
Solicitation Provision to invite competing offers from the potential bidders subject to the
Don‘t-Ask-Don‘t-Waive Standstills; (3) extension of the tender offer for seven days,
Two other class actions were filed later and consolidated in this Court; four similar
actions were filed in the Superior Court of Alameda County, California between March
23 and April 7, 2011 (the ―California State Actions‖); and two other actions were filed in
United States District Court for the District of California on April 1 and 11 (together with
the California State Actions, the ―California Actions‖).
from April 25 to no earlier than May 2, 2011; and (4) amendment of the
Recommendation Statement to provide supplemental disclosures about the transaction
process and Credit Suisse‘s financial analysis. The MOU did not contain a monetary
component or otherwise increase the $8 per share Merger consideration. In exchange,
Plaintiffs agreed to a general release of any and all claims relating to the Merger,
including any money damages claims the class might hold. The MOU also provided
Plaintiffs ―the right to withdraw from the Settlement in the event that they determine that
the Settlement is not fair, reasonable, adequate or in the best interests of the Class.‖19
BVF filed a notice of its intent to object to the settlement on May 2, 2011—i.e., before
the Merger had closed, Plaintiffs‘ counsel had conducted any confirmatory discovery, or
the final settlement agreement had been submitted to the Court.20
Events after the MOU
On April 19, 2011, the day after the parties entered into the MOU, Black Horse
Capital Management LLC (―Black Horse‖) sent a letter to Celera offering to partner with
Quest by providing up to an additional $2.50 per share in cash for Celera‘s rights in CatK and certain other drug assets. Quest, however, was not interested in partnering with
Black Horse. Furthermore, none of the other companies previously bound by the Don‘t-
Memorandum of Understanding, D.I. No. 79 Ex. A, at 9 [hereinafter MOU].
In October 2011, another putative class member objected to the proposed settlement on
the basis of the notice provided to the class. See Letter, D.I. No. 114, at 1 (Oct. 12,
2011). Contrary to that class member‘s assertion, I find that the notice distributed to the
class sufficiently described the terms of the proposed settlement. See Aff. of Mailing of
Notice, D.I. No. 140 Ex. A, at 5-6. Therefore, this objection is not well-founded.
Ask-Don‘t-Waive Standstills submitted competing offers. Thus, notwithstanding BVF‘s
vocal disapproval of the $8 Merger price, no superior offer arose.
By 5:00 p.m. on May 2, the extended deadline of the tender offer, Spark had
received only 49.22% of Celera‘s common stock. The shortfall below 50% meant that
Spark had not satisfied the Minimum Condition. Accordingly, Spark extended its offer
for an additional day. By the following evening, however, Spark had received 52.38%,
enabling it to satisfy the Minimum Condition and complete the tender offer. After a
―subsequent offering period,‖ which closed May 10, 2011, Spark also exceeded the 60%
threshold necessary to exercise its Top-Up Option.
On May 11, Quest publicly
announced its intent to exercise the Top-Up Option and effect a short-form merger ―as
promptly as practicable.‖21
Thus, as of May 11, a squeeze-out merger of Celera‘s
remaining stockholders—including, at that time, both BVF and NOERS—at $8 per share
became a fait accompli.
Although Celera stock then effectively represented the right to receive $8 in cash
in a matter of days, the trading price of the stock remained slightly above $8 even after
May 11. Indeed, on May 13, NOERS sold all of its approximately 10,000 Celera shares
on the secondary market at a price of $8.0457. That is, rather than hold until the Merger
closed, NOERS sold its shares early to capture an additional profit in the range of $500.
The Merger closed four days later, on May 17.
Celera Corp., Tender Offer Statement (Schedule TO) Amendment No. 13 Ex.
99(a)(5)(M), at 1 (May 11, 2011).
Approximately four months after the Merger closed, on August 9, 2011, the
parties entered into a final Stipulation and Agreement of Compromise and Settlement (the
―Settlement Agreement‖). On August 15, the Court entered a scheduling order pursuant
to which notice was sent to the proposed class and a hearing to consider whether to
approve the Settlement Agreement was scheduled for November 18, 2011.
In advance of the hearing and in support of its objection to the settlement, BVF
took the deposition of NOERS and obtained production of documents regarding
NOERS‘s standing and adequacy to represent the class. The settlement hearing on
November 18, 2011 lasted three and one-half hours. The issues regarding NOERS‘s
standing and adequacy to represent the class, however, were not addressed to the Court‘s
satisfaction. As a result and at the Court‘s invitation, the parties submitted supplemental
letters on December 2, 2011 addressing these issues.
This Opinion constitutes the Court‘s rulings on numerous disputed matters
regarding whether it should (1) certify the class, (2) approve the Settlement Agreement,
and (3) award attorneys‘ fees to Plaintiffs‘ counsel in the amount they requested.
―Delaware law favors the voluntary settlement of corporate disputes.‖22
Nonetheless, Court of Chancery Rule 23(e) requires court approval before a class action
may be dismissed or compromised. This Rule is ―intended to guard against surreptitious
In re Triarc Cos. Class & Deriv. Litig., 791 A.2d 872, 876 (Del. Ch. 2001) (citing Kahn
v. Sullivan, 594 A.2d 48, 58 (Del. 1991)).
buy-outs of representative plaintiffs, leaving other class members without recourse.‖23
Accordingly, the reviewing court ―must balance the policy preference for settlement
against the need to insure that the interests of the class have been fairly represented.‖24 In
doing so, the court must determine whether to certify the class under Rules 23(a) and (b),
an inquiry with constitutional due process dimensions,25 and apply its own business
judgment in considering the fairness of the settlement.26
The proponents of the
settlement bear the burden of establishing that class certification is proper and the terms
of the settlement agreement are fair.27 Additionally, where a class action settlement
confers an ascertainable benefit upon the class, whether monetary or therapeutic, class
counsel may request a reasonable award of attorneys‘ fees for their efforts in creating the
Although this matter is before the Court for approval of a settlement agreement,
there are a number of issues in dispute. First, Plaintiffs and Defendants support certifying
the class with NOERS as class representative under Rule 23(a) and without affording any
class member a right to opt out of the settlement under Rule 23(b). The objector, BVF,
however, asserts that due process requires both NOERS‘s disqualification and the
Wied v. Valhi, Inc., 466 A.2d 9, 15 (Del. 1983).
Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1283 (Del. 1989).
Prezant v. De Angelis, 636 A.2d 915, 925 (Del. 1994).
Polk v. Good, 507 A.2d 531, 535-36 (Del. 1986).
Barkan, 567 A.2d at 1285-86.
Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1165 (Del. 1989).
provision of opt out rights to at least BVF. Second, as to the fairness of the proposed
settlement, Plaintiffs contend that the settlement is fair because both the claims to be
released and the consideration received are commensurately strong, whereas Defendants
argue that the settlement is fair because the claims and consideration are commensurately
weak. For its part, BVF objects to the settlement as an unfair exchange of strong claims
for weak consideration. Finally, because Plaintiffs and Defendants disagree on the value
of the benefits conferred by the settlement, they also dispute the amount of attorneys‘
fees and expenses to which Plaintiffs‘ counsel is entitled—Plaintiffs request
approximately $3.6 million, and Defendants argue that no more than $1 million is
reasonable. The following subparts address each of these arguments in turn.
Under Rule 23, class certification involves a two-step analysis: the class action
must, first, satisfy all four prerequisites mandated by Rule 23(a) and, second, fall within
one or more of the three categories delineated in Rule 23(b).29
Requirements of Rule 23(a)
Rule 23(a) provides:
One or more members of a class may sue or be sued as
representative parties on behalf of all only if (1) the class is so
numerous that joinder of all members is impracticable, (2)
there are questions of law or fact common to the class, (3) the
claims or defenses of the representative parties are typical of
the claims or defenses of the class, and (4) the representative
parties will fairly and adequately protect the interests of the
Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1224 (Del. 1991).
―Prerequisites (1) and (2) focus on the characteristics of the proposed class, while
prerequisites (3) and (4) focus on the characteristics of the named party as the proposed
The proposed class is defined as ―[a]ny and all record holders and beneficial
owners of any share(s) of Celera common stock who held any such share(s) at any time
[between February 3, 2010 and May 17, 2011, inclusive], but excluding the
There is no dispute that the first two requirements of Rule 23(a),
numerosity and commonality of questions of law or fact, are satisfied. BVF disputes,
however, whether NOERS satisfies the requirements of Rule 23(a)(3) and (4), typicality
and adequacy of representation.
―The test of typicality is that ‗the legal and factual position of the class
representative must not be markedly different from that of the members of the class.‘‖32
Where a putative lead plaintiff is susceptible to a unique defense—or, in some cases,
even only the strong possibility of such a defense—typicality may not exist.33 Plaintiffs
characterize their claims as identical to all other class members and, therefore, assert that
Id. at 1225.
Settlement Agreement, D.I. No. 79, at 14.
Krapf, 584 A.2d at 1225-26 (quoting Singer v. Magnavox Co., 1978 WL 4651, at *2 (Del.
Ch. Dec. 14, 1978)).
See Dieter v. Prime Computer, Inc., 681 A.2d 1068, 1072-73 (Del. Ch. 1996)
(disqualifying putative lead plaintiff due to the ―spectre‖ of susceptibility to a unique
NOERS is a typical class representative. In arguing to the contrary, BVF contends that
NOERS is susceptible to a unique defense atypical of the class because it acquiesced in
Defendants‘ allegedly wrongful conduct by selling its shares at a premium on the
secondary market four days before the Merger closed. For the following reasons, I
conclude that NOERS is not susceptible to an acquiescence defense and, even if it were,
such susceptibility would not render NOERS‘s claims atypical under Rule 23(a)(3).34
Is NOERS susceptible to an acquiescence defense?
The equitable defense of acquiescence ―may produce a quasi estoppel,‖35 similar
to the doctrine of laches in certain respects.36
In general, to be susceptible to an
acquiescence defense, the plaintiff must: (1) have ―full knowledge of his [or her] rights
and all material facts‖37; (2) possess a ―meaningful choice‖ in determining how to act38;
My analysis of this issue would be very different, and much shorter, if this were a
derivative action. In derivative suits, 8 Del. C. § 327 and Court of Chancery Rule 23.1
require representative plaintiffs to maintain their status as shareholders throughout the
litigation. Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984). In a direct action such
as this, however, there is no contemporaneous and continuous ownership requirement.
3 Pomeroy’s Equity Jurisprudence § 816, at 245 (5th ed. 1941) [hereinafter Pomeroy’s].
See id. § 817, at 249 (―Upon obtaining knowledge of the facts, [the plaintiff] should
commence the proceedings for relief as soon as reasonably possible. Acquiescence
consisting of unnecessary delay after such knowledge will defeat the equitable relief.‖).
Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the
Delaware Court of Chancery § 11.04, at 11-18 to 11-19 (2010) [hereinafter Wolfe &
Pittenger]; accord Norberg v. Sec. Storage Co. of Wash., 2000 WL 1375868, at *5 (Del.
Ch. Sept. 19, 2000) (―the [plaintiff] must have been adequately informed of all material
facts relevant to the transaction‖); 3 Pomeroy’s § 817, at 246 (―acquiescence must be
with knowledge of the wrongful acts themselves, and of their injurious consequences‖).
In re Best Lock Corp. S’holder Litig., 845 A.2d 1057, 1076 (Del. Ch. 2001); accord Kahn
v. Household Acq. Corp., 1982 WL 8778, at *2 (Del. Ch. Jan. 19, 1982) (finding
shareholder‘s acceptance of freeze-out merger consideration did not operate as
and (3) act voluntarily in a manner ―show[ing] unequivocal approval‖ of the challenged
conduct.39 Thus, the doctrine of acquiescence protects defendants from being misled into
believing that their conduct has been approved.40
As applied to shareholder actions, acquiescence may preclude recovery by a fully
informed shareholder who accepts the benefits of a transaction after filing a complaint
challenging its merits.41 In Norberg, for example, a minority shareholder challenged a
freeze-out merger by filing a complaint alleging breach of fiduciary duty against the
company‘s directors and majority shareholder. Approximately seventeen months later,
the shareholder tendered his shares for the original merger consideration and gave no
indication that he intended to continue litigating his unfairness claims. Thus, although
the plaintiff‘s complaint indicated that he was fully informed of the material facts, ―he
abandoned his appraisal claim, challenged the fairness of the price and the process and
later, despite his declared assessment of the unfairness of the transaction, freely and
acquiescence because, in part, ―plaintiff did no more than accept the amount she was
powerless to do anything about‖).
In re Best Lock, 845 A.2d at 1080; accord Clements v. Rogers, 790 A.2d 1222, 1238 n.46
(Del. Ch. 2001) (observing that acquiescence requires a showing that the plaintiff ―has
acknowledged the legitimacy of the defendant‘s conduct‖).
See 3 Pomeroy’s § 817, at 246 (The plaintiff‘s conduct ―must last for an unreasonable
length of time, so that it will be inequitable even to the wrong-doer to enforce the
peculiar remedies of equity against him, after he has been suffered to go on unmolested,
and his conduct apparently acquiesced in.‖).
See, e.g., Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 848 (Del. 1987); Norberg,
2000 WL 1375868, at *5; Trounstine v. Remington Rand, Inc., 194 A. 95, 100 (Del. Ch.
voluntarily accepted the merger consideration.‖42 Under those facts, the court held that
the doctrine of acquiescence applied and the plaintiff, as a matter of law, could not
succeed on his complaint.43
Nevertheless, the mere act of tendering one‘s shares while simultaneously
pursuing an equitable claim is not sufficient to show acquiescence.44
defendant still must show all three elements of the general defense. For example, a
finding that the shareholder was unaware of all of the material facts precludes a showing
of acquiescence, even though the shareholder knew enough to plead upon information
and belief in the complaint.45 Similarly, where ―the approval process takes on an aura of
inevitability,‖ shareholders may lack a meaningful choice.46 Finally, evidence that a
shareholder voted against a deal, or simply abstained from voting, does not show the
requisite unequivocal approval of the challenged conduct.47
Norberg, 2000 WL 1375868, at *6-7.
Id. at *7.
In re Best Lock, 845 A.2d at 1078.
In re Emerging Commc’ns, Inc. S’holders Litig., 2004 WL 1305745, at *30 n.129 (Del.
Ch. May 3, 2004) (―[A] plaintiff who accepts the merger consideration could not have
acquiesced where she knew some, but not all of the material facts.‖ (citing Clements, 790
A.2d at 1238)); Iseman v. Liquid Air Corp., 1993 WL 40048, at *2 (Del. Ch. Feb. 11,
Serlick v. Pennzoil, 1984 WL 8267, at *3 (Del. Ch. Nov. 27, 1984).
In re PNB Hldg. Co., 2006 WL 2403999, at *21 (holding acquiescence does not bar
shareholders who ―never endorsed the [challenged merger] by voting yes‖ because ―all of
them, by not voting or abstaining, effectively cast a no vote,‖ and that ―stockholders who
do not vote for a transaction and who simply accept the transactional consideration rather
than seek appraisal are not barred from making or participating in an equitable challenge
to the transaction‖).
In this action, NOERS filed an initial, a consolidated, and an amended
consolidated class action complaint alleging that the Board breached its duty of loyalty
by agreeing to sell the Company after a defective process.
conducted expedited discovery regarding the allegations made in those complaints. As a
result, NOERS likely possessed full knowledge of its rights and all material facts
regarding its challenge to the Merger, similar to the plaintiff in Norberg.
The stage of these proceedings, however, is salient; whether NOERS is susceptible
to the acquiescence defense arises in the context of a settlement hearing. NOERS‘s
willingness to settle itself indicates a degree of ―acquiescence,‖ in the ordinary sense of
the word, to the conduct it challenged in its various complaints. An implicit assumption
of BVF‘s objection, however, is that the acquiescence defense would preclude NOERS
from continuing to litigate its claims if it had uncovered additional information during
confirmatory discovery suggesting that the proposed settlement was not fair, reasonable,
adequate, or in the best interests of the class. Thus, the basis of the objection presumes
that NOERS was not fully informed when it sold its shares. Had NOERS uncovered
additional information and rescinded the MOU, the situation would be more analogous to
Iseman than it would be to Norberg.48 That is, to be partially or even mostly informed
See Iseman, 1993 WL 40048, at *2 (―The fact that plaintiffs were able to make such
allegations does not mean that they had somehow learned all of the information that had
been withheld from or misrepresented to the stockholders of [the company]. It only
means that they had been able to piece together enough [information] . . . to satisfy the
standards of Chancery Court Rule 11 in making allegations upon information and
does not satisfy the requirement that a plaintiff be fully informed.49 For this reason alone,
the acquiescence defense would not have barred NOERS from continuing to litigate had
it uncovered new information strengthening its claims.
Additionally, NOERS arguably did not have a meaningful choice when it sold its
shares. Where a squeeze-out merger extinguishes the minority‘s legal right to remain
shareholders of the corporation, ―the ‗choice‘ between accepting the possibly inadequate
merger consideration and pursuing a possibly inadequate appraisal remedy‖ is not ―a
meaningful choice.‖50 This conclusion derives from the ―aura of inevitability‖ inherent
in such transactions.51 In that respect, the market knew as of May 11, 2011 that Quest
Clements, 790 A.2d at 1238 (finding no acquiescence where ―the defendants fail to show
that [the plaintiff] was aware of all the material facts, not simply that she was aware of
some of the material facts that buttress her claims‖).
In re Best Lock, 845 A.2d at 1075-76; accord In re PNB Hldg. Co. S’holders Litig., 2006
WL 2403999, at *21-22 (Del. Ch. Aug. 18, 2006); In re JCC Hldg. Co. S’holders Litig.,
843 A.2d 713, 724 (Del. Ch. 2003); Clements, 790 A.2d at 1238; Serlick, 1984 WL 8267,
at *3. Appraisal may be inadequate because 8 Del. C. § 262(h) limits the shareholders‘
recovery to the ―fair value‖ of their stock, whereas a plenary action for breach of
fiduciary duty can provide additional remedies to redress fraud, self-dealing, waste, or
other corporate misconduct. See Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 46668 (Del. Ch. 2011); Wood v. Frank E. Best, Inc., 1999 WL 504779, at *3 (Del. Ch. July
9, 1999). Appraisal carries the additional procedural disadvantages of limited
compensation mechanisms, most notably the absence of fee-shifting, to fund appraisal
actions and the possibility that the ―fair value‖ the class receives ultimately may be less
than the contested merger consideration. 1 R. Franklin Balotti & Jesse A. Finkelstein,
The Delaware Law of Corporations and Business Organizations § 9.37, at 9-83 to 9-84
(3rd ed., rev. vol. 2012).
Serlick, 1984 WL 8267, at *3. Much of the case law evaluating the existence of a
―meaningful‖ choice relates to reasoning from Kahn v. Lynch Communications, Inc., 638
A.2d 1110 (Del. 1994), which concerns voting dynamics that may arise where there is a
controlling shareholder. This case does not involve a controlling shareholder. The
Merger at issue here was structured as a front-end tender offer with a back-end top-up
option and short-form merger. Nevertheless, it is the inevitable nature of squeeze-out
transactions, not simply the voting dynamics presumed by Lynch, that frustrates
intended to exercise its Top-Up Option and cash out all remaining Celera shareholders
―as promptly as practicable,‖52 i.e., that the transaction NOERS was challenging had
become inevitable. At that point, the choice between accepting the Merger consideration
―under protest‖ and seeking appraisal was not meaningful. Concededly, NOERS did not
actually accept the Merger consideration. On May 13, NOERS sold its Celera shares,
which equated to a right to receive $8 in cash in four days, for $8.05. The presence of
that alternative offer, however, arguably still did not provide a meaningful choice.
Although NOERS may have chosen rationally, from its perspective, the lesser of two
evils, the marginal market premium NOERS obtained does not necessarily reflect
acquiescence in the approximately $8 Merger price or negate or resolve the concerns of
inevitability that animate the controlling shareholder cases.
As to the third and final element of acquiescence—showing unequivocal approval
of the transaction—I note that NOERS technically evinced its disapproval of the Merger
terms by accepting a superior offer from the secondary market. Furthermore, to the
extent that the five cent premium NOERS received may be characterized as de minimis
or effectively equivalent to accepting the challenged consideration, NOERS‘s decisions
meaningful choice. See In re PNB Hldg. Co, 2006 WL 2403999, at *21-22 (―I begin with
the important recognition that this is not a transaction governed by the Lynch doctrine
. . . . Acceptance of the merger consideration is simply an abandonment of the appraisal
right, no more and no less, at least in the usual case.‖); Serlick, 1984 WL 8267, at *3
(holding, ten years before Lynch, acquiescence inapplicable where approval of
transaction appeared inevitable).
Celera Corp., Tender Offer Statement (Schedule TO) Amendment No. 13 Ex.
99(a)(5)(M), at 1 (May 11, 2011).
not to tender its shares to Quest on the front-end and to hold its shares until the Merger
became a certainty on the back-end, all while simultaneously pursuing this action, belies
an unequivocal showing of acquiescence. Indeed, in the ordinary 8 Del. C. § 251 context,
only shareholders ―who cast yes votes are barred by the doctrine of acquiescence,‖53
because they ―cannot assume a pose of approval in the voting process and then seek to
litigate under a contrary position in a Court of Equity.‖ 54 In the context of a two-tiered
tender offer and squeeze-out merger, the closest analogy to a shareholder vote essentially
is the decision to tender on the front-end. NOERS, however, did not tender its shares.
Instead, it withheld its approval of the challenged transaction and accepted the rough
equivalent of the Merger consideration only after becoming ―powerless to do anything
about‖ the Merger.55
Other than by accepting a marginally superior offer and
conditionally settling this action, NOERS showed no support for the Merger, let alone
BVF‘s reliance on Norberg is misplaced for at least one additional reason. In
Norberg, the plaintiff challenged the fairness of a transaction in his pleadings. But,
seventeen months later, he effectively accepted a settlement without ―offering some
caveat to his tender that he intended to pursue his litigation further.‖56
In re PNB Hldg. Co., 2006 WL 2403999, at *21 (emphasis added).
Kahn v. Household Acq. Corp., 591 A.2d 166, 176-77 (Del. 1991) (emphasis added).
Kahn v. Household Acq. Corp., 1982 WL 8778, at *2 (Del. Ch. Jan. 19, 1982).
Norberg v. Sec. Storage Co. of Wash., 2000 WL 1375868, at *7 (Del. Ch. Sept. 19,
therefore, found it ―difficult to see how Norberg‘s conduct under these circumstances
does not imply an intent to relinquish his right to challenge the fairness of the merger
transaction.‖57 Here, by contrast, NOERS conditionally settled its claims while reserving
expressly its ―right to withdraw from the Settlement in the event [it] determine[d] that the
Settlement [was] not fair, reasonable, adequate or in the best interests of the Class.‖58
Unlike in Norberg, NOERS explicitly manifested its intent not to relinquish its claims.
Stated differently, because Defendants expressly granted NOERS the right to continue
litigating, Defendants cannot contend seriously (nor do they claim) to have been misled
into believing that their conduct was ―apparently acquiesced in.‖59
In sum, NOERS is not susceptible to an acquiescence defense, as BVF‘s objection
asserts, because the objection presumes that NOERS was not fully informed of all the
material facts, NOERS arguably lacked a meaningful choice, and NOERS did not show
unequivocal approval of the challenged transaction.
Alternatively, even if NOERS were susceptible to an acquiescence defense,
would that make it atypical under Rule 23(a)(3)?
Rule 23(a)(3) requires that a class representative‘s claims or defenses not be
―markedly‖ different from those of the other class members, but it does not require that
all claims or defenses be coextensive or identical.60 Thus, even assuming NOERS were
MOU at 9.
3 Pomeroy’s § 817, at 246.
Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1225-26 (Del. 1991).
susceptible to an acquiescence defense, I would have to determine whether that
susceptibility renders its position markedly different from the rest of the class before
finding that the typicality requirement had not been met.
The class in this case includes all beneficial and record holders of Celera stock at
any time between the dates when the Board first began to consider a sale of the Company
and when the Merger closed. Thus, the class includes shareholders who traded even
before the Merger Agreement was announced as well as those who tendered on the frontend, were cashed out involuntarily on the back-end, and, like NOERS, sold their shares
on the secondary market in the interim. To the extent BVF contends that NOERS is
susceptible to the acquiescence defense, then so too would be all other class members
who sold or tendered their shares before May 17, 2011, i.e., the majority of the class.61 In
this regard, NOERS‘s exposure to the acquiescence defense would not render it
susceptible to a unique defense atypical of the claims or defenses of the class. 62 Rather,
―the different positions of class members on the issue of acquiescence . . . could be
Between May 11 and May 17, 2011, Quest held approximately 60% of the Company‘s
outstanding shares and BVF held approximately 25%. Quest, as a Defendant, is excluded
from the class. Thus, the class members who were cashed out involuntarily on May 17
include only BVF and the holders of the remaining 15% of Celera‘s outstanding shares.
See 7A Charles Alan Wright et al., Federal Practice & Procedure § 1764 (3d ed., rev.
vol. 2011) (―In general, the [typicality] requirement may be satisfied even though varying
fact patterns support the claims or defenses of individual class members or there is a
disparity in the damages claimed by the representative parties and the other class
members.‖ (footnotes omitted)). In this regard, I note that Court of Chancery Rule 23 is
almost identical to Rule 23 of the Federal Rules of Civil Procedure. Nottingham P’rs v.
Dana, 564 A.2d 1089, 1094 & n.4 (Del. 1989) (citing Federal Practice & Procedure as
relevant authority). ―This Court, therefore, often looks to federal decisions interpreting
[Rule 23] for precedent that may help to construe and apply its Court of Chancery
counterpart.‖ O’Malley v. Boris, 2001 WL 50204, at *4 (Del. Ch. Jan. 11, 2001).
addressed fairly in one class action, with at most the possible need for the creation of
subclasses.‖63 Moreover, any decision on such a need for subclasses can be deferred until
the potential conflict arises.64
Even where a defense is unique to the class representative, that fact does not
automatically preclude satisfaction of the typicality requirement. ―A unique defense will
render the proposed class representative‘s claims atypical only if it is likely to be a ‗major
focus‘ of the litigation and not if it is insignificant or improbable.‖65 To determine
whether a unique defense is likely to be a ―major focus,‖ Delaware courts consider when
issues concerning the defense would need to be resolved. In O’Malley v. Boris, a class of
brokerage customers brought claims for breach of the duties of loyalty and disclosure
against their broker, but the putative class representative admitted at his deposition that
the alleged disclosure violations were not material or misleading to him. 66
acknowledging that those admissions eventually could prevent that particular plaintiff
from recovering damages, Chancellor Chandler found Rule 23(a)(3) satisfied based on
the following federal precedent:
In re JCC Hldg. Co., 843 A.2d at 725 n.34 (emphasis omitted).
Singer v. Magnavox Co., 1978 WL 4651, at *4 (Del. Ch. Dec. 14, 1978) (―Should a
conflict among members of the class develop at the remedy stage, the Court has the
power under Rule 23 to establish subclasses or fashion other appropriate measures.‖
1 William B. Rubenstein, Newberg on Class Actions § 3:45 (5th ed., rev. vol. 2011)
(footnotes omitted). ―The ‗major focus‘ test is designed to insure that defenses unique to
the class representative would not consume a significant portion of class resources or
distract from issues common to the class.‖ Id.
O’Malley, 2001 WL 50204, at *3.
The defendants‘ contention that the existence of a unique
defense renders a representative‘s claim atypical has been
rejected where the overriding question common to the class is
―logically prior‖ to special defenses against the named
plaintiff. . . . Where, as here, an alleged defense may affect
the individual‘s ultimate right to recover, but it does not affect
the presentation of the case on the liability issues for the
plaintiff class, that defense should not make a plaintiff‘s
Thus, in O’Malley, the court held that the unique defense was not certain to be a major
focus of the litigation.
In Dieter v. Prime Computer, Inc.,68 then-Vice Chancellor, now-Chief Justice
Steele applied consistent reasoning, but reached a contrary conclusion, to O’Malley. In
Prime Computer, the putative lead plaintiffs brought a direct action challenging a merger,
but they had purchased their shares after the merger announcement. On that basis, the
defendants challenged the lead plaintiffs‘ standing. The court first observed that ―no
Delaware court has spoken to this issue [of standing] in a class action context,‖ in
contrast to the contemporaneous ownership requirement under 8 Del. C. § 327 and Rule
23.1 in the derivative action context.69 Ultimately, the court found that ―the spectre of the
representatives.‖70 In contrast to O’Malley, the lead plaintiffs in Prime Computer were
Id. at *4 (alteration in original) (quoting Zeffiro v. First Pa. Banking & Trust Co., 96
F.R.D. 567, 570 (E.D. Pa. 1983)).
681 A.2d 1068 (Del. Ch. 1996).
Id. at 1072.
Id. at 1072-73.
subject to a unique defense (i.e., standing, a jurisdictional requirement) that necessarily
would assume a major role relatively early in the litigation. Therefore, the typicality
requirement was not met.
Turning to this case, allegations of acquiescence are not ―logically prior‖ to
liability issues. Acquiescence is an affirmative defense that neither ―cut[s] off the party‘s
title, nor his remedy at law; it simply bars his right to equitable relief.‖71 In this regard,
NOERS‘s unique acquiescence in Celera‘s conduct, if any, renders this case more
analogous to O’Malley and Singer than to Prime Computer.
That is, although
acquiescence ―may affect [NOERS‘s] ultimate right to recover, . . . it does not affect the
presentation of the case on the liability issues for the plaintiff class,‖72 and ―[s]hould a
conflict among members of the class develop at the remedy stage, the Court has the
power under Rule 23 to establish subclasses or fashion other appropriate measures.‖73
Therefore, disqualification of NOERS as a class representative is not necessary.
Has NOERS satisfied its burden to demonstrate typicality?
Although NOERS‘s alleged acquiescence does not disqualify it from serving as
class representative, NOERS still bears the affirmative burden to show that its claims and
defenses are typical of the class.74 ―A representative‘s claim or defense will suffice if it
‗arises from the same event or course of conduct that gives rise to the claims [or
3 Pomeroy’s § 817, at 246 (emphasis added).
O’Malley, 2001 WL 50204, at *4.
Singer, 1978 WL 4651, at *4.
Barbieri v. Swing-N-Slide Corp., 1996 WL 255907, at *3 (Del. Ch. May 7, 1996).
defenses] of other class members and is based on the same legal theory.‘‖75 Here,
NOERS‘s claims are identical to those of the other class members. ―Because all [c]lass
members face the same injury flowing from the defendants‘ conduct in connection with
the merger, the typicality requirement is satisfied.‖76
A class action may be maintained only if the class representative also ―will fairly
and adequately protect the interests of the class.‖77 The United States Supreme Court has
held that ―the Due Process Clause . . . requires that the named plaintiff at all times
adequately represent the interests of the absent class members.‖78
requirement, like the typicality requirement, attempts to ensure that the class
representative has proper incentives to advance the interests of the class; typicality
requires overlapping claims in particular, whereas adequacy speaks to alignment of
interests more generally.79
The courts generally accord the greatest weight to the
presence or absence of conflicts of interest or economic antagonism when evaluating a
Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1226 (Del. 1991) (alteration in
original) (quoting Zeffiro, 96 F.R.D. at 569).
In re Talley Indus., Inc. S’holders Litig., 1998 WL 191939, at *9 (Del. Ch. Apr. 13,
Ct. Ch. R. 23(a)(4).
Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985).
See 1 William B. Rubenstein, Newberg on Class Actions § 3:32.
lead plaintiff‘s adequacy.80
Nevertheless, ―purely hypothetical, potential, or remote
conflicts of interest never disable the individual plaintiff.‖81
BVF contends that, because NOERS voluntarily sold its shares on the secondary
market, NOERS suffered no transactional damages from Defendants‘ alleged
wrongdoing. Consequently, according to BVF, NOERS could not recover monetary
relief from either a settlement or final judgment and, therefore, lacked the economic
interest to conduct meaningful confirmatory discovery or to rescind the MOU and pursue
a monetary recovery. Based on that reasoning, BVF argues that, after NOERS sold its
Celera stock, the class lacked an adequate plaintiff and, therefore, the proposed
settlement cannot be approved.82 Ultimately, however, this argument is unpersuasive.
NOERS is a member of a class to which fiduciary duties allegedly were breached.
Because claims for breach of fiduciary duty are personal, they do not transfer to a later
purchaser of the initial shareholder‘s stock.83 Moreover, if NOERS‘s fiduciary claims
Wolfe & Pittenger, § 9.03[b][iv], at 9-151 to 9-152.
Youngman v. Tahmoush, 457 A.2d 376, 380 (Del. 1983).
See Prezant v. De Angelis, 636 A.2d 915, 925 (Del. 1994) (―In addition to the due
process concern, if, in fact, there was no adequate class representative, the entire
settlement process was tainted.‖).
Schultz v. Ginsburg, 965 A.2d 661, 667-68 & n.12 (Del. 2009). In concluding that
personal claims, as opposed to charter violation claims, do not transfer to later
purchasers, the Schultz Court relied on the wording of the Uniform Commercial Code as
enacted in Delaware. Specifically, 6 Del. C. § 8-302(a) provides, ―a purchaser of a . . .
security acquires all rights in the security that the transferor had or had power to
transfer.‖ ―The phrase ‗all rights in the security‘ means rights in the security itself as
opposed to personal rights.‖ Schultz, 965 A.2d at 667 n.12. This reasoning is in accord
with Delaware‘s ―strong policy against the purchase of a lawsuit.‖ Omnicare, Inc. v.
NCS Healthcare, Inc., 809 A.2d 1163, 1170 (Del. Ch. 2002).
were derivative, it would not be able to recover because the corporation would receive
the relief and NOERS no longer holds stock in the corporation.84 Because the claims
involved in this case are both personal and direct, however, NOERS is not categorically
barred from receiving monetary relief, even though it no longer owns Celera stock.85
Furthermore, this may be true even if NOERS suffered no transactional damages.
―Once disloyalty has been established, [Delaware law] requires that a fiduciary not profit
personally from his conduct, and that the beneficiary not be harmed by such conduct.‖ 86
Indeed, this Court ―can, and has in the past, awarded damages designed to eliminate the
possibility of profit flowing to defendants from the breach of the fiduciary
In a counter-factual world, NOERS could have found irrefutable
evidence during confirmatory discovery that the $8 per share merger consideration was
grossly inadequate and, in that case, arguably might have found it more difficult to prove
its entitlement to a damages award. Alternatively, NOERS could have found irrefutable
evidence that $8 per share was fair, but that the Celera Board conducted a disloyal sales
Schultz, 965 A.2d at 668.
Cf. In re Beatrice Cos., Inc. Litig., 522 A.2d 865 (Del. 1987) (ORDER) (To have
standing, ―the plaintiff must have been a stockholder at the time the terms of the merger
were agreed upon because it is the terms of the merger, rather than the technicality of its
consummation, which are challenged.‖).
Thorpe v. CERBCO, Inc., 676 A.2d 436, 445 (Del. 1996) (imposing monetary liability to
remedy breach of loyalty despite the absence of transactional damages).
Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1154 (Del. Ch. 2006).
process designed to extract grossly excessive personal benefits.88 In this latter case, the
members of the class might not have suffered transactional damages, but they and
NOERS still might be entitled to share in an equitable disgorgement remedy. Thus, as a
class member, NOERS continued to have an incentive to pursue vigorously any monetary
relief that might flow to the class.
Although the sale of its shares did not preclude NOERS from receiving a
monetary recovery, it might have created a disabling conflict of interest for NOERS in
deciding how to allocate or distribute whatever funds might have become available to the
class. ―An allocation plan must be fair, reasonable, and adequate[, but a] reasonable plan
does not need to compensate [c]lass members equally . . . and may consider the relative
value of competing claims.‖89 The extent of any potential conflict for NOERS in this
regard, however, necessarily would depend on the amount of, and basis for, whatever
funds became available. Thus, it is only a potential, nondisabling conflict.90
In arguing to the contrary, BVF supports a bright line test. It contends that a lead
plaintiff that sells its shares before the challenged merger closes necessarily is inadequate
Indeed, this scenario more closely tracks the allegations NOERS actually made. See
Consol. Am. Compl. ¶ 1 (―In the face of mounting personal liability, the Celera Board
struck a deal to sell the Company in exchange for broad indemnification and lucrative
Schultz, 965 A.2d at 667 (footnotes omitted).
Youngman v. Tahmoush, 457 A.2d 376, 380 (Del. 1983); cf. In re Revlon, Inc. S’holders
Litig., 990 A.2d 940, 962 (Del. Ch. 2010) (―The settlement involves . . . non-monetary
consideration that already ha[s] been provided to the class. Thus if I approve the
settlement, no conflicts will arise, and all that remains will be settlement
under Rule 23(a)(4) based on three recent cases—Steinhardt v. Howard-Anderson,91 In re
Labarage Inc. Shareholders Litigation,92 and In re J. Crew Group, Inc. Shareholders
Litigation.93 BVF‘s contention, however, overstates the holdings of these cases, and
especially so as to Steinhardt. Steinhardt was a lead plaintiff who received confidential
information about the defendant company during discovery and, while possessing that
inside information, shorted the company‘s stock before the market learned of the strength
of the class‘s claims.94 Among other things, the court dismissed Steinhardt from the case
and ordered him to disgorge whatever profits he had received from the improper short
sales.95 The court did not hold categorically, however, that a lead plaintiff simply cannot
sell his or her shares before the challenged transaction is consummated. Rather, because
a lead plaintiff is a fiduciary to the class, the analysis relied on the black-letter principle
that ―[i]t is an act of disloyalty for a fiduciary to profit personally from the use of
information secured in a confidential relationship.‖96 Here, by contrast, ―the NOERS
investment advisor . . . sought a risk-free arbitrage‖97 opportunity only after all material
information regarding the lawsuit, settlement, and transaction were disclosed to the
2012 WL 29340 (Del. Ch. Jan. 6, 2012).
C.A. No. 6368-VCN (Del. Ch. Jan. 3, 2012) (TRANSCRIPT).
C.A. No. 6043-CS (Del. Ch. Dec. 14, 2011) (TRANSCRIPT).
Steinhardt, 2012 WL 29340, at *6-7.
Id. at *11.
Id. (quoting Oberly v. Kirby, 592 A.2d 445, 463 (Del. 1991)); accord Rest. (3d) Agency
§ 8.05(2) (2006) (―An agent has a duty . . . not to use or communicate confidential
information of the principal for the agent‘s own purposes or those of a third party.‖).
Hr‘g Tr. 96.
marketplace.98 NOERS‘s sale of all of its Celera shares appears to have resulted from
carelessness or imprudence. Nevertheless, NOERS‘s conduct is not comparable in nature
or degree to Steinhardt‘s potentially substantive offense.
The Labarage case also involved a co-lead plaintiff that sold its shares while in
possession of nonpublic company information and during the negotiation of a settlement,
but before the settlement publicly was disclosed. Hence, as in Steinhardt, the court‘s
―real concern‖ was that the lead plaintiff traded with the ―knowledge before any other
shareholder that nothing is going to come of the suit in terms of increasing the
consideration.‖99 Counsel represented, however, that an independent investment manager
sold the shares on the co-lead plaintiff‘s behalf despite clear instructions to the contrary.
Additionally, to avoid even the appearance of impropriety, the co-lead plaintiff
immediately disclosed the unintentional trade to all parties, voluntarily withdrew from the
case, and left a second co-lead plaintiff to continue to represent the class.100 Thus,
Labarage is distinguishable in at least two respects. First, the offending co-lead plaintiff
withdrew from the case pursuant to an agreement among the parties; the court did not
order that result. Second, as in Steinhardt, the wrongdoing at issue was trading on inside
information. Here, there is no indication that NOERS possessed any material, nonpublic
information when it sold its shares.
The MOU was publicly disclosed on April 18, 2011, and Quest announced on May 11
that it would effect a short-form merger. NOERS did not sell its shares until May 13.
C.A. No. 6368-VCN, tr. at 7-8 (Del. Ch. Jan. 3, 2012).
Id. at 7.
The facts of J. Crew are more closely analogous.
plaintiff was NOERS.
Most obviously, the lead
Nevertheless, the case is distinguishable.
challenged the terms of a going-private transaction but ultimately voted at a shareholders
meeting to approve the deal. Such conduct unequivocally evinces acquiescence.101 Here,
by contrast, NOERS sold its shares only after the transaction had become a fait
While NOERS‘s imprudent sale of its Celera stock is distinguishable from these
recent cases, the frequency with which Delaware courts have had to address the conduct
of lead plaintiffs in recent months is troubling. When a class representative purports to
object on behalf of itself and all others similarly situated only to decide later that the
objected-to conduct may not have been all that bad, that representative is prone to appear
more concerned about its own interests than those of the class.
undermines the trust shareholders place in lead plaintiffs and, in turn, effaces courts‘
Kahn v. Household Acq. Corp., 591 A.2d 166, 176-77 (Del. 1991); In re PNB Hldg. Co.,
2006 WL 2403999, at *21.
In a final, but still unsuccessful, effort to show that NOERS lacked economic incentive in
this case, BVF also notes that the negotiated settlement approved by Vice Chancellor
Laster in In re Del Monte Foods Co. Shareholders Litigation did not allocate any portion
of the approximately $89 million settlement fund to shareholders who sold their shares
before the challenged merger closed. As in J. Crew, however, the challenged transaction
in Del Monte required an approving shareholder vote. In re Del Monte Foods Co.
S’holders Litig., 2011 WL 2535256, at *6 (Del. Ch. June 27, 2011) [hereinafter Del
Monte II] (―the operative standard for the merger vote was a majority of the outstanding
shares‖ (emphasis omitted)). Hence, shareholders who sold early—and thereby forfeited
their power to prevent the supposed harm from occurring—also forfeited their right to
equitable relief. See 2 Pomeroy’s § 418, at 169 (―The principle embodied in th[e] maxim
[equity aids the vigilant, not those who slumber on their rights] operates throughout the
entire remedial portion of equity jurisprudence . . . .‖).
confidence in the adequacy of the representation that a lead plaintiff is capable of
providing.103 Although I conclude ultimately that NOERS is an adequate class
representative in this case, I do not reach that conclusion lightly. Lead plaintiffs must
remain committed to fulfilling their obligations to those they represent throughout the
Among other things, that should include thinking about more than the
technical permissibility of their conduct, but also how their conduct is likely to be
perceived. Here, NOERS engendered a host of legitimate criticisms to its commitment to
this case by choosing to take advantage of a ―risk-free arbitrage‖ opportunity.
Technically permissible or not, that choice failed to reflect an appropriate level of regard
and respect for NOERS‘s position as a fiduciary for the class. As this case demonstrates,
Delaware courts have good reason to expect more from those who would serve as lead
plaintiffs in representative litigation. Accordingly, I may well employ a more bright line
test in the future.
In the final analysis, however, and having carefully considered BVF‘s challenges
to NOERS‘s motives and qualifications to serve as lead plaintiff for the class here, I find
that NOERS had a continuing economic interest in prosecuting its claims and that there is
no evidence of actual antagonism between NOERS and other class members. Moreover,
See In re J. Crew Gp., Inc. S’holders Litig., C.A. No. 6043-CS, tr. at 81 (Del. Ch. Dec.
14, 2011) (―The fact that in a high profile situation they actually vote for the deal [does
not] make them look good. It casts doubts in the minds of people that they‘re seeking
NOERS engaged highly qualified and experienced counsel. Therefore, I conclude that
NOERS is an adequate class representative under Rule 23(a)(4).104
Requirements of Rule 23(b)
Where, as here, ―the provisions of subsection (a) are satisfied, the next step is to
properly fit the action within the framework provided for in subsection (b).‖105
Rule 23(b) divides class actions into three categories.
Subdivision (b)(1) applies to class actions that are necessary
to protect the party opposing the class or the members of the
class from inconsistent adjudications in separate actions.
Subdivision (b)(2) applies to class actions for class-wide
injunctive or declaratory relief. . . .
Rule 23(b)(3) has . . . been called the ―damage class
action‖ because it authorizes a single lawsuit for monetary
redress on behalf of numerous persons having similar
disputes with the defendant, when economies of time, effort,
and expense would be achieved by representative group
―Class suits are not necessarily mutually exclusive; an action may be certified under more
than one subdivision of Rule 23(b) in appropriate circumstances.‖107
constitutional due process requires that class members receive actual notice and the right
to opt out of a class certified under subdivision (b)(3).108
There is no comparable
requirement for (b)(1) or (b)(2) classes, but the Court ―has discretionary power . . . to
See Oliver v. Boston Univ., 2002 WL 385553, at *7 (Del. Ch. Feb. 28, 2002).
Nottingham P’rs v. Dana, 564 A.2d 1089, 1095 (Del. 1989).
Id. at 1095-96 (footnotes, citations, and internal quotation marks omitted).
Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1226 (Del. 1991).
Nottingham P’rs, 564 A.2d at 1097.
provide for an opt out right . . . if it believes that an opt out right is necessary to protect
the interest of absent class members.‖109
Plaintiffs and Defendants seek class certification under both subdivisions (b)(1)
and (b)(2), and they expressly conditioned their settlement on having the class certified
without opt out rights.110 BVF counters that the United States Supreme Court‘s decision
in Wal-Mart Stores, Inc. v. Dukes111 requires that this class be certified under subdivision
(b)(3) or, in the alternative, that the Court exercise its discretion to permit opt out rights.
For the following reasons, certification under subdivisions (b)(1) and (b)(2), without opt
out rights, is proper in this case.
Is this a (b)(1), (2), or (3) class action?
―Delaware courts repeatedly have held that actions challenging the propriety of
director conduct in carrying out corporate transactions are properly certifiable under both
subdivisions (b)(1) and (b)(2).‖112 In addition, this Court has held that the availability of
post-closing damages does not invoke the ―damages class action‖ framework of
In short, if a finding of damages occurs, the damages will be
mathematically allocated on a per share basis to all the
stockholders in similar circumstances. There is a total
absence of individual issues and therefore there would be no
Id. at 1101.
Settlement Agreement ¶ 21(b) & Ex. F ¶ 3.
-- U.S. --, 131 S. Ct. 2541 (2011).
In re Cox Radio, Inc. S’holders Litig., 2010 WL 1806616, at *8 (Del. Ch. May 6, 2010)
(citing, among other cases, Nottingham P’rs, 564 A.2d at 1096-97).
reason for the Court to make a separate finding of damages as
to each share or each shareholder.113
Thus, under well-settled Delaware precedent, this case should be certified under
subdivisions (b)(1) and (b)(2), rather than under (b)(3).
Contrary to BVF‘s assertion, Wal-Mart v. Dukes did not overturn Delaware law in
this respect. Wal-Mart concerned certification of a class of approximately 1.5 million
current and former female employees of Wal-Mart alleged to have suffered wage and
promotion discrimination in violation of Title VII of the Civil Rights Act of 1964. 114 To
remedy a Title VII violation, a court ―may enjoin the respondent from engaging in such
unlawful employment practice, and order such affirmative action as may be appropriate,
[including] reinstatement or hiring of employees, with or without backpay . . . or any
other equitable relief as the court deems appropriate.‖115 Although Title VII also permits
compensatory damages, the class in Wal-Mart predominately sought injunctive relief and
related backpay. On that basis, the plaintiffs requested certification under subdivision
(b)(2). The Supreme Court, however, held that each class member‘s request for backpay
involved an individualized claim for money damages. Thus, assuming the suit could be
maintained as a class action at all, due process required certification under subdivision
Joseph v. Shell Oil Co., 1985 WL 21125, at *5 (Del. Ch. Feb. 8, 1985).
131 S. Ct. at 2547.
42 U.S.C. § 2000e–5(g)(1).
Wal-Mart, 131 S. Ct. at 2557-58.
The plaintiffs‘ argument that backpay issues would not ―predominate‖ over the
class-wide request for injunctive relief did not dissuade the Supreme Court from holding
that due process required the actual notice and opt out rights provided by Rule
In that regard, though, the Supreme Court acknowledged Fifth Circuit
that a (b)(2) class would permit the certification of monetary
relief that is ―incidental to requested injunctive or declaratory
relief,‖ which it defined as ―damages that flow directly from
liability to the class as a whole on the claims forming the
basis of the injunctive or declaratory relief.‖ In [the Fifth
Circuit‘s] view, such ―incidental damage should not require
additional hearings to resolve the disparate merits of each
individual‘s case; it should neither introduce new substantial
legal or factual issues, nor entail complex individualized
But, the Supreme Court stated expressly that ―we need not decide in [Wal-Mart] whether
there are any forms of ‗incidental‘ monetary relief that are consistent with the
interpretation of Rule 23(b)(2) we have announced‖ because the putative class plaintiffs
―do not argue that they can satisfy this standard, and in any event they cannot.‖119
When this Court provides monetary relief for a breach of fiduciary duty, it
generally is not making an individualized determination of each shareholder‘s loss.
Rather, much like the Fifth Circuit precedent considered by the Supreme Court in WalMart, the monetary relief flows directly from a finding of liability to the class as a whole
Id. at 2559.
Id. at 2560 (quoting Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir.
on the claims forming the basis for equitable relief—i.e., it is the remedy for violation of
an equitable right owed simultaneously and equally to all class members. The fact that
allocation of a common fund does not need to compensate class members equally does
not invoke the procedural requirements of subdivision (b)(3).
apportionment of the relief is not synonymous with idiosyncrasy of the claims.120
Nothing in Wal-Mart, therefore, indicates that shareholders deserve an opt out
right whenever they claim a corporate fiduciary breached a duty potentially entitling the
shareholder class to monetary relief.121 Accordingly, the Delaware Supreme Court‘s
holdings in Nottingham Partners and similar cases continue to control.122
Should the Court nevertheless provide opt out rights to the class?
Even where due process does not require the right to opt out,
the Court of Chancery has discretionary power [to provide it]
if it believes that an opt out right is necessary to protect the
interest of absent class members. Penson v. Terminal Transp.
Co., 634 F.2d [989, 993-94 (5th Cir. 1981)]. In exercising its
discretion, . . . the Court of Chancery must balance the
equities of the defendants‘ desire to resolve all claims in a
single proceeding against the individuals‘ interest in having
their own day in Court.123
See Joseph, 1985 WL 21125, at *5.
See In re Del Monte Foods Co. S’holders Litig., C.A. No. 6027-VCL, tr. at 48-49 (Del.
Ch. Dec. 1, 2011) (―The idea that a court can‘t certify a class under (b)(2) simply because
it involves money damages . . . is based on an overly cramped and unpersuasive reading
of Shutts and Wal-Mart.‖).
Nottingham P’rs, 564 A.2d at 1096-97 (affirming certification under subdivision (b)(2)
because ―the primary relief sought and obtained in the Settlement was declaratory,
injunctive and rescissory‖).
Id. at 1101.
BVF asks the Court to exercise that discretion here because BVF is ―a significant
stockholder [that] wishes to pursue money damages claims‖ and ―it would be
fundamentally unfair to permit a holder of a small amount of stock to use the class action
process to drag the significant stockholder into a class action[,] . . . settle at the injunction
stage for non-monetary consideration, and then seek millions of dollars in attorneys‘
fees.‖124 BVF‘s argument, however, is unpersuasive.
As indicated above, Nottingham Partners relied on Penson for the proposition that
a trial court can permit opt out rights in appropriate (b)(2) class actions. In Penson, the
Fifth Circuit reasoned that due process ordinarily does not require opt out rights for (b)(2)
classes because there is a ―cohesiveness [to the class] claimed to result from both the
group nature of the harm alleged and the broad character of the relief sought‖ that is not
present in a (b)(3) class.125
This theory, however, has broken down [where] individual
monetary relief for class members, typically back pay, is
sought in addition to classwide injunctive or declaratory
relief. . . . [In such a case], there has been more concern with
protecting the due process rights of the individual class
members to ensure they are aware of the opportunity to
receive the monetary relief to which they are entitled.126
Thus, the concerns animating the need for discretionary opt out rights in (b)(1) and (b)(2)
classes stem from the same issues involved in Wal-Mart, i.e., individualized claims for
backpay amidst an otherwise classwide claim for equitable relief. As already discussed,
BVF‘s Ans. Br. 51-52.
Penson, 634 F.2d at 994.
Id. (citations omitted).
those issues typically are not present in the corporate context; the fact that class members
may hold varying amounts of the defendant corporation‘s stock does not undermine the
assumption of cohesiveness or the group nature of the alleged harm.
This is not to say that a significant shareholder‘s objection to a proposed
settlement is irrelevant. To the contrary, the importance of such an objection manifests
itself in at least two ways, but neither relates to the Court‘s determination of whether to
provide discretionary opt out rights. First, the relative magnitude of a putative class
representative‘s financial interest in the suit compared to the objector‘s interest and the
relative support, or lack thereof, the lead plaintiff receives from other class members can
speak to the adequacy requirement of Rule 23(a)(4). In that regard, however, ―the court
has paid little heed to arguments that the representative lacks sufficient support from
other class members . . . [and] has often certified class representatives even though they
have a relatively small personal financial interest in the litigation.‖127 Second, the Court
generally considers the merits of objections when reviewing the substantive fairness of
the proposed settlement,128 discussed in Part II.B, infra, rather than in the context of class
Wolfe & Pittenger § 9.03[b][iv], at 9-152 (footnotes omitted) (citing, among other
cases, Van de Walle v. Salomon Bros., Inc., 1997 WL 633288 (Del. Ch. Oct. 2, 1997) and
Van De Walle v. Unimation, Inc., 1983 WL 8949 (Del. Ch. Dec. 6, 1983)). In any event,
as noted in Part II.A.1.b, supra, NOERS possesses sufficient economic interest in this suit
and has exhibited no antagonism to other class members; therefore, NOERS adequately
can represent the class notwithstanding BVF‘s objection.
Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1283-84 (Del. 1989).
In the latter regard, I also note that Defendants seek complete peace in this
settlement, and permitting BVF to litigate ―the identical claims being settled . . . would
utterly defeat the purpose of the settlement.‖129
Not surprisingly, therefore, the
Settlement Agreement is conditioned on the class being certified without opt out rights.130
Thus, providing opt out rights effectively would amount to disapproving the settlement
altogether. I prefer to consider whether such a result is appropriate based on the merits,
and not Rule 23.
In sum, I find that NOERS has satisfied the four prerequisites of Rule 23(a) and
that this litigation falls within the framework provided by Rule 23(b)(1) and (2).
Therefore, I certify the class as specified in Plaintiffs‘ Motion for Final Approval of the
Settlement. Additionally, based on the circumstances of this case, I decline to provide
any opt out rights.
Approval of the Settlement
Standard of review for settlements
Under Rule 23(e), the voluntary dismissal or compromise of a class action requires
prior approval by the Court. ―Because of the fiduciary character of a class action, . . . it is
incumbent upon the Court to determine the intrinsic fairness of a settlement.‖131
Essentially, the reviewing court, in the exercise of its own business judgment, must be
In re Phila. Stock Exch., Inc., 945 A.2d 1123, 1137 (Del. 2008).
Settlement Agreement ¶ 21(b) & Ex. F ¶ 3.
In re Cox Radio, Inc. S’holders Litig., 2010 WL 1806616, at *8 (Del. Ch. May 6, 2010)
(citing Rome v. Archer, 197 A.2d 49, 53 (Del. 1964)), aff’d, 9 A.3d 475 (Del. 2010)
satisfied that the benefits provided and claims extinguished by the proposed settlement
reflect a fair, adequate, and reasonable exchange.132 This analysis necessarily entails an
assessment of ―the nature of the claim[s], the possible defenses thereto, [and] the legal
and factual circumstances of the case.‖133 If the consideration the class receives is at least
commensurate with the reviewing court‘s assessment of their released claims, then
approval of the settlement is warranted and vice versa.134 Application of independent
business judgment also necessarily involves a measure of discretion.135 Although the
reviewing court ―must carefully consider all challenges to the fairness of the
settlement,‖136 it need not actually try the issues presented or ―decide any of the issues on
Finally, the proponents of a proposed class action settlement, here
NOERS and Defendants, bear the burden of proving that the settlement is fair and
Barkan, 567 A.2d at 1285; Polk v. Good, 507 A.2d 531, 535 (Del. 1986).
Polk v. Good, 507 A.2d at 535.
Barkan, 567 A.2d at 1285; In re Prime Hospitality, Inc., 2005 WL 1138738, at *7 (Del.
Ch. May 4, 2005).
Barkan, 567 A.2d at 1284.
Polk v. Good, 507 A.2d at 536.
Barkan, 567 A.2d at 1285-86.
Benefits of the settlement to the stockholders
The Settlement Agreement provides Celera stockholders with two categories of
benefits, the first of which is therapeutic changes to the terms of the Merger.
Specifically, Defendants agreed to waive the Don‘t-Ask-Don‘t-Waive Standstills, to
reduce the Termination Fee from $23.45 million to $15.6 million, and to extend the
closing of the tender offer by one week. Defendants did not agree, however, to increase
the Merger price or otherwise provide Celera stockholders any monetary benefit.
Nevertheless, ―[t]he benefit generated from modifying deal protections . . . is an
increased opportunity for stockholders to receive greater value.‖139 In waiving the Don‘tAsk-Don‘t-Waive Standstills, for example, Defendants invited back to the bargaining
table the four bidders arguably most likely to make a superior offer (because they already
had performed some due diligence and perhaps could evaluate more quickly whether to
make a competitive offer). Similarly, ―termination fee[s] . . . serve as the lower bound
In re Compellent Techs., Inc. S’holder Litig., 2011 WL 6382523, at *19 (Del. Ch. Dec. 9,
2011). Thus, Defendants‘ and BVF‘s criticisms of these benefits as ineffectual because
no superior offer actually emerged are misplaced. I also reject BVF‘s denigration of the
one-week extension to May 2. Because Quest extended the tender offer three more times
until May 10, BVF contends that ―an extension of time for the tender offer would have
occurred even without the Proposed Settlement.‖ BVF‘s Ans. Br. 48. The extensions
from May 3-10, however, were necessary only for Quest to reach the 60% threshold to
exercise its Top-Up Option. For purposes of making a superior bid, the tender offer
effectively closed on May 3. As to the one-day extension from May 2 to May 3, I note
that Quest had obtained over 49% of the voting stock as of May 2. If anything, the fact
that a handful of shareholders sat on the fence until the last moment while BVF and
others vocally dissented to the Merger Agreement undermines BVF‘s assertion that the
one-week extension was worthless.
for the incremental value of a topping bid.‖140 Lowering a termination fee thus reduces
the barrier to making a superior offer in the first place and increases the amount of the
superior offer‘s consideration that would go directly to shareholders. Lastly, extending
the closing date of the tender offer afforded potential bidders more time to conduct due
diligence and consider whether to make a competing bid. It also afforded stockholders
more time to consider the Company‘s supplemental disclosures, discussed infra.
Whatever the intrinsic value of these therapeutic benefits, I also note that, as to a
handful of Plaintiffs‘ claims, the therapeutic deal changes may represent the maximum
relief that Plaintiffs could have obtained. For example, Plaintiffs may have been able to
show that the combined potency of the Don‘t-Ask-Don‘t-Waive Standstills and the No
The terms of the Don‘t-Ask-Don‘t-Waive
Solicitation Provision was problematic.
Standstills restricted the potential bidder from, among other things, acquiring, offering to
acquire, or soliciting proxies of Celera securities in any manner (including by assisting
others to do any of the same) without the Company‘s express written invitation.
Furthermore, the affected bidders agreed ―not to request the Company (or its directors,
officers, employees or agents), directly or indirectly, to amend or waive any provision of
[the relevant standstill terms] (including this sentence).‖141 Viewed in isolation, these
Don‘t-Ask-Don‘t-Waive Standstills arguably foster legitimate objectives: ―ensur[ing] that
confidential information is not misused . . . [,] establish[ing] rules of the game that
Del Monte II, 2011 WL 2535256, at *15.
Pl.‘s Prelim. Inj. Br. App. Ex. 42, at CRA000594.
promote an orderly auction, and . . . giv[ing] the corporation leverage to extract
concessions from the parties who seek to make a bid.‖142 Similarly, the No Solicitation
Provision, viewed in isolation, appears legitimate; although it prevented the Company
from contacting potentially interested parties, including the previously identified parties,
it also contained a ―fiduciary out‖ permitting the Board to waive the Don‘t-Ask-Don‘tWaive Standstills if strict compliance with the Merger Agreement would violate the
Board‘s fiduciary duty to maximize shareholder value.143
Taken together, however, the Don‘t-Ask-Don‘t-Waive Standstills and No
Solicitation Provision are more problematic.
―[The Delaware Supreme] Court has
stressed the importance of the board being adequately informed in negotiating a sale of
control: ‗The need for adequate information is central to the enlightened evaluation of a
transaction that a board must make.‘‖144 Here, the Don‘t-Ask-Don‘t-Waive Standstills
block at least a handful of once-interested parties from informing the Board of their
willingness to bid (including indirectly by asking a third party, such as an investment
bank, to do so on their behalf), and the No Solicitation Provision blocks the Board from
inquiring further into those parties‘ interest. Thus, Plaintiffs have at least a colorable
argument that these constraints collectively operate to ensure an informational vacuum.
Moreover, the increased risk that the Board would outright lack adequate information
In re Topps Co. S’holders Litig., 926 A.2d 58, 91 (Del. Ch. 2007).
Merger Agreement § 6.4(a).
Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 44 (Del. 1994) (quoting
Barkan, 567 A.2d at 1287).
arguably emasculates whatever protections the No Solicitation Provision‘s fiduciary out
otherwise could have provided. Once resigned to a measure of willful blindness, the
Board would lack the information to determine whether continued compliance with the
Merger Agreement would violate its fiduciary duty to consider superior offers.
Contracting into such a state conceivably could constitute a breach of fiduciary duty.145
To be clear, I do not find, either in the circumstances of this case or generally, that
provisions expressly barring a restricted party from seeking a waiver of a standstill
necessarily are unenforceable. Such a ruling should be made, if ever, only on the merits
of an appropriately developed record, especially because these provisions may be
relatively common.146 Rather, based on the issues it redresses, I find this aspect of the
settlement consideration to be valuable. Had Plaintiffs succeeded on this claim, the likely
remedy would have been an injunction against enforcing the Standstill agreements.147
Therefore, Defendants‘ agreement to waive voluntarily those problematic contractual
provisions mooted Plaintiffs‘ claims in this regard.
See QVC, 637 A.2d at 51 (―To the extent that a contract, or a provision thereof, purports
to require a board to act or not act in such a fashion as to limit the exercise of fiduciary
duties, it is invalid and unenforceable.‖); ACE Ltd. v. Capital Re Corp., 747 A.2d 95, 106
(Del. Ch. 1999) (finding no solicitation provision ―pernicious‖ where it arguably required
―an abdication by the board of its duty to determine what its own fiduciary obligations
require‖); see also In re RehabCare Gp., Inc. S’holder Litig., C.A. No. 6197-VCL, tr. at
46 (Del. Ch. Sept. 8, 2011) (expressing doubt that don‘t-ask-don‘t-waive standstills are
―ever going to hold up if it‘s actually litigated, particularly after Topps‖).
See 1 Arthur Fleischer, Jr. & Alexander R. Sussman, Takeover Defense: Mergers &
Acquisitions § 8.04[A], at 8-21 (6th ed., rev. vol. 2012).
See In re Topps, 926 A.2d at 92 (enjoining shareholder vote on merger until target
waived standstill agreement used improperly).
Similarly, to the extent that Plaintiffs complained of a deficient or disloyal market
check, the likely remedy would have been limited injunctive relief, long enough to
recreate an active market check but ―without blocking the deal and sending the parties
back to the drawing board.‖148 Where a company has been exposed to the market and
potential transactions shopped for some time, even an egregious case of process defects
probably would have led to an injunction of only twenty days or so.149 Furthermore,
where no rival bidder has made its presence known, preliminary injunctive relief may be
Although post-closing damages still may be available if
preliminary injunctive relief is only limited in nature or denied altogether, the alleged
process violations here, as discussed further infra, were significantly less severe than in
Del Monte or El Paso. Hence, the one-week extension arguably obtained all the relief
that was likely.
The second category of benefits obtained by the Settlement Agreement is a sixpage amendment to the Recommendation Statement, which was filed publicly with the
In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 841 (Del. Ch. 2011)
[hereinafter Del Monte I] (enjoining transaction for twenty days due to substantial
process defects and banker conflicts).
See In re El Paso Corp. S’holder Litig., 2012 WL 653845, at *11 (Del. Ch. Feb. 29,
2012) (declining to enjoin transaction despite likelihood of success on the merits because
―no rival bid for [the target] exists‖); see also id. at *11 n.56 (―Although it is true that the
absence of a pre-signing market check and the presence of strong deal protections may
explain the absence of a competing bid, . . . [i]n the era in which Revlon was decided,
bidders wishing to disrupt transactions actually made their presence known and litigated
to achieve their objectives.‖).
SEC on April 18, 2011 (the ―Supplemental Disclosure‖).
Of the supplemental
information provided to Celera stockholders, the most significant relates to the
discounted cash flow (DCF) analysis Credit Suisse performed.151
In particular, the
original Recommendation Statement disclosed the facts that Credit Suisse had ―calculated
the present value of the Company‘s interest in its non-commercial, development stage
drug assets‖ and that Credit Suisse factored those calculations into the ultimate, fullCompany DCF analysis, but the Recommendation Statement did not disclose the
individual drug-by-drug cash flow projections.152
The Supplemental Disclosure, by
contrast, provides the ―probability-adjusted after-tax free cash flows through 2025 for the
Company‘s development stage drug assets,‖ including Cat-K.153 Although more granular
financial information is not necessarily material,154 the estimated value of Celera‘s drug
assets engendered various challenges to the adequacy of the Merger‘s financial terms and
thereby assumed actual significance in this case.
For example, during the Board‘s
negotiations with Quest in February 2011, BVF informed Ordoñez that it would try to
block any transaction unless the Company‘s drug assets were sold separately or the deal
The Supplemental Disclosure provides Celera stockholders with a litany of additional
information. For purposes of evaluating the fairness of the proposed settlement, I focus
on the two disclosures I consider most valuable to the class. When determining infra an
appropriate award of attorneys‘ fees, however, I review the panoply of supplemental
disclosures somewhat further.
Recommendation Statement at 37.
Celera Corp., Recommendation Statement (Schedule 14D-9) Amendment No. 7, at 5
(Apr. 18, 2011) [hereinafter Supplemental Disclosure].
See Zirn v. VLI Corp., 1995 WL 362616, at *4 (Del. Ch. June 12, 1995) (Delaware law
attempts to ―guard against the fallacy that increasingly detailed disclosure is always
material and beneficial disclosure.‖), aff’d, 681 A.2d 1050 (Del. 1996).
provided some way for shareholders to participate in future value attributable to those
assets. Similarly, Black Horse offered to contribute an additional $2.50 per share to
Quest‘s bid in exchange for Celera‘s drug assets. All in all, I find that the supplemental
information provided about the standalone value of the Company‘s development stage
drug assets probably assisted stockholders‘ ability to assess the fairness of the
consideration Quest offered.
Also valuable, albeit less so than the above, was the additional information
regarding certain assumptions Credit Suisse made in its DCF analysis. As disclosed in
the Supplemental Disclosure,
[s]tock-based compensation expense . . . often is treated in the
same manner as depreciation and amortization and bad debt
expense for the purposes of [DCF] analysis. However,
because the Company has relatively large stock-based
compensation expense relative to its actual and estimated
EBITDA, Credit Suisse determined that the Company‘s
stock-based compensation should be treated as a cash expense
for purposes of its [DCF] analysis. Accordingly, for purposes
of calculating the Company‘s unlevered free cash flows,
[Credit Suisse excluded] approximately $5-6 million per year
of stock-based compensation included in the February 2011
Forecast. Had the Company‘s unlevered, after-tax cash flows
been increased by the amount of its stock-based
compensation expense, the per share equity reference ranges
for the Company disclosed on page 37 would have been
To a degree, this passage states a commonsense notion: had Credit Suisse made different
assumptions, its analysis would be different.
The Supplemental Disclosure is more
valuable here, however, because it indicates that Credit Suisse made at least one unusual,
Supplemental Disclosure at 4.
though arguably justifiable, assumption. Thus, although this particular disclosure does
not alter Credit Suisse‘s bottom-line valuation of the Company, it better enables
stockholders to assess for themselves the reasonableness of Credit Suisse‘s favorable
Costs of the settlement to the stockholders
By settling, Plaintiffs release any and all claims against Defendants, whether
known or unknown, in any way related to the Merger.157 In assessing the cost of this
release, I must evaluate ―the nature of the claim[s], the possible defenses thereto, [and]
the legal and factual circumstances of the case,‖ although I need not ―decide any of the
issues on the merits.‖158 In this regard, BVF objects to the proposed settlement primarily
because it undervalues ―valuable claims for money damages‖ against the Board and
Credit Suisse ―worth millions of dollars.‖159 Accordingly, in assessing the nature of the
claims and defenses, I focus on the claims that BVF contends are especially meritorious.
Fiduciary duty claims against the Board
Plaintiffs challenged a sale of Celera for cash, thus requiring enhanced judicial
scrutiny of the Board‘s actions under Revlon, Inc. v. MacAndrews & Forbes Holdings160
See In re Pure Res., Inc., S’holders Litig., 808 A.2d 421, 449 (Del. Ch. 2002) (―The real
informative value of the banker‘s work is not in its bottom-line conclusion, but in the
valuation analysis that buttresses that result.‖).
Settlement Agreement § 1(i) (defining ―Released Claims‖).
Polk v. Good, 507 A.2d at 535-36.
BVF‘s Ans. Br. 50, 51-52.
506 A.2d 173 (Del. 1986).
and its progeny. ―When directors have commenced a transaction process that will result
in a change of control, a reviewing court will examine whether the board has reasonably
performed its fiduciary duties ‗in the service of a specific objective: maximizing the sale
price of the enterprise.‘‖161 This enhanced scrutiny ―has both subjective and objective
components.‖162 Subjectively, the directors must have tried in good faith to get the best
available price, and those good faith efforts must have been objectively reasonable.163
Many decisions and actions, however, may be reasonable ones; ―there is no single
blueprint that a board must follow to fulfill its duties.‖164 Thus, while Revlon review is
more searching than business judgment rule deference, a court still may not ―secondguess reasonable, but debatable, tactical choices that directors have made in good
As the Delaware Supreme Court has made clear, Revlon review does not alter
directors‘ traditional fiduciary duties of care and loyalty, but merely specifies the
application of those duties in the context of control transactions.166 In that regard, the
Company‘s certificate of incorporation, which contains an exculpatory provision pursuant
In re Alloy, Inc., 2011 WL 4863716, at *7 (Del. Ch. Oct. 13, 2011) (quoting Malpiede v.
Townson, 780 A.2d 1075, 1083 (Del. 2001)).
Del Monte I, 25 A.3d at 830.
Id. (citing, among other cases, Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d
34, 43 (Del. 1994)).
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 242-43 (Del. 2009) (quoting Barkan, 567
A.2d at 1286) (internal quotation marks omitted).
In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 1000 (Del. Ch. 2005).
Malpiede, 780 A.2d at 1083.
to 8 Del. C. § 102(b)(7) eliminating monetary liability for breaches of the duty of care,167
cabins the strength of Plaintiffs‘ claims against the Celera Board.
challenged transaction has closed and neither injunctive relief nor rescission is available,‖
claims that the Board failed to maximize the sales price of the enterprise ―are of little or
no value unless that failure is predicated upon the directors‘ disloyalty or bad faith.‖168
With these general principles in mind, I next turn to NOERS‘s and BVF‘s specific
accusations of bad faith or the absence of reasonable efforts to maximize the sales price
Oversight of the sales process
Plaintiffs assert that the Board unreasonably abdicated responsibility for the
negotiation process to Ordoñez and Credit Suisse, both of whom were conflicted.
Assuming the Board, in fact, did hand over negotiations to conflicted fiduciaries and
advisors, Plaintiffs would possess a strong claim.169 If, however, the Board was not
Cook Aff., D.I. No. 149 Ex. 57, Art. SIXTH.
In re Prime Hospitality, Inc., 2005 WL 1138738, at *8 (Del. Ch. May 4, 2005); accord
Lyondell, 970 A.2d at 239 (Because the ―charter includes an exculpatory provision, . . .
this case turns on whether any arguable shortcomings on the part of the Lyondell
directors also implicate their duty of loyalty, a breach of which is not exculpated.‖).
See Mills Acq. Co. v. Macmillan, Inc., 559 A.2d 1261, 1281 (Del. 1989) (A board ―may
not avoid its active and direct duty of oversight in a matter as significant as the sale of
corporate control.‖); In re Toys “R” Us, 877 A.2d at 1002 (―[T]he paradigmatic context
for a good Revlon claim . . . is when a supine board under the sway of an overweening
CEO bent on a certain direction tilts the sales process for reasons inimical to the
stockholders‘ desire for the best price.‖).
supine, but ―actively engaged throughout the sale process,‖ then the claim would fail.170
Thus, the strength of this claim turns on the nature of the Board‘s involvement in the
At least one director, Richard Ayers, testified that the Board expected Ordoñez
and Credit Suisse to lead the relevant negotiations.171 Ordoñez testified, however, that
she never negotiated the sales price, leaving those negotiations to other, outside directors
and Credit Suisse.172 Furthermore, the fact that the Board may have apportioned and
delegated necessary tasks does not mean that it failed to exercise oversight or otherwise
acted in bad faith.173 In that regard, it is relevant that the Board regularly discussed and
debated the sales process during at least sixteen meetings and that neither Ordoñez nor
Credit Suisse could have bound the Board to any deal of which it disapproved.174
As to the reasonableness of Credit Suisse‘s involvement, a board generally may
rely in good faith on qualified experts selected with reasonable care.175 There is no
allegation in this case that Credit Suisse lacked the requisite expertise to advise the
In re Cogent, Inc. S’holder Litig., 7 A.3d 487, 498 (Del. Ch. 2010); accord In re Dollar
Thrifty S’holder Litig., 14 A.3d 573, 602 (Del. Ch. 2010).
Cook Aff., D.I. No. 147 Ex. 1, at 16.
Cook Aff., D.I. No. 147 Ex. 6, at 158 (―[A]ll the [price] negotiations were done either
through the bankers or with Bill Green. My job was to provide the diligence . . . .‖), 223
(―as I‘ve said multiple times, I didn‘t negotiate the price‖) [hereinafter Ordoñez Dep.].
See In re NYMEX S’holder Litig., 2009 WL 3206051, at *7 (Del. Ch. Sept. 30, 2009) (―It
is well within the business judgment of the Board to determine how merger negotiations
will be conducted, and to delegate the task of negotiating to . . . the Chief Executive
8 Del. C. § 141(e).
Board. Nevertheless, ―this Court has . . . examined banker conflicts closely to determine
whether they tainted the directors‘ process.‖176 Of particular concern in this context is
whether the banker‘s conflicts were disclosed to the board and whether the board
reasonably could rely on the banker‘s expert advice despite an alleged conflict.177
Here, the principal accusation of disabling self-interest is the contingent structure
of Credit Suisse‘s fee. The Board presumably was aware of that conflict because it
negotiated the fee.178 Arguably, the fee structure incentivized Credit Suisse to favor a
single, rather than piecemeal, sale of the Company. Alternatively, the largest portion of
Credit Suisse‘s fee ultimately was its entitlement to 1.3% of the transaction size, which
provided proper incentives to negotiate zealously for the highest possible price. In this
factual context—i.e., where a financial advisor‘s disclosed fee structure potentially
provides proper incentives, but arguably does not—the contingent nature of the fee,
standing alone, is unlikely to make delegation of subordinate tasks to that adviser
unreasonable. Indeed, as this Court has recognized, ―[c]ontingent fees are undoubtedly
routine; they reduce the target‘s expense if a deal is not completed; perhaps, they
properly incentivize the financial advisor to focus on the appropriate outcome.‖179
Del Monte I, 25 A.3d at 832.
See id. at 836 (finding reliance on conflicted banker unreasonable where the banker
deceived the board by failing to disclose its conflict).
Thus, this case is readily distinguishable from Del Monte, which involved multiple,
egregious, and furtive conflicts of interest. See id.
In re Atheros Commc’ns, Inc., 2011 WL 864928, at *8 (Del. Ch. Mar. 4, 2011); see also
In re Alloy, Inc., 2011 WL 4863716, at *11 (Del. Ch. Oct. 13, 2011) (The ―need to
In sum, although the factual record leaves some room for doubt, I consider any
claim by the class that the Board acted disloyally or in bad faith because Ordoñez and
Credit Suisse participated meaningfully in the negotiation process to have been relatively
weak and unlikely to succeed.
Reliance on Credit Suisse’s flawed financial analysis
The parties generally agree that, beginning in March 2011, Credit Suisse
misapprehended the Tufts Study and undervalued the development-stage Cat-K drug by
employing inaccurate probability of success rates. Additionally, in December 2010,
Ordoñez sent an email expressing at least some measure of doubt about Credit Suisse‘s
valuation of certain other drug assets. The email stated, ―I don‘t think CS got the analysis
right.‖180 Because of Celera‘s § 102(b)(7) exculpatory provision, however, the Board‘s
carelessness, if any, in failing to recognize these errors cannot support a claim for money
damages. Rather, the viability of this claim depends on whether the Board acted in bad
faith by relying on what it knew was an inaccurate analysis.
Although there is some evidence from which one could infer that the Board was
aware of Credit Suisse‘s errors—most notably, Ordoñez‘s December 2010 email—other
evidence supports a conclusion that Credit Suisse‘s errors were neither conspicuous nor
significant. As to the conspicuousness of the errors, Credit Suisse‘s valuation of Cat-K
had been declining gradually in the year preceding the flawed March 2011 analysis, and
disclose does not imply that contingent fees necessarily produce specious fairness
Thomas Aff., D.I. No. 127 Ex. 2, at 1.
the undervaluation caused by the erroneous probability adjustments comports with that
general decline.181 Similarly, the erroneous analysis performed in March 2011 footnoted
only the fact that the present value of Cat-K reflected a discount based on the Tufts
Study‘s probability adjustments; the numerical value of the probability adjustments
actually employed are disclosed elsewhere in an appendix of additional information.182
Furthermore, Ordoñez‘s December 2010 email did not refer to the probability
adjustments. It expressed doubts about Credit Suisse‘s classification of one particular
drug and, in turn, the relevant market for that drug. Finally, although I find this argument
less persuasive, Defendants also note that the dollar value of Credit Suisse‘s error with
respect to Cat-K—undervaluing the drug in the range of $11.5 million to $12.7 million—
amounts to less than 2% of the approximately $680 million total deal size.
Regarding the significance of Credit Suisse‘s errors, there is evidence to support a
conclusion that their effect was harmless. First, as indicated supra, the lower bound of
Credit Suisse‘s fairness opinion assumed that none of Celera‘s drug assets would
generate future cash flows. Thus, the errors would not have affected the lower bound of
the values Credit Suisse considered fair.
Instead, its flawed analysis may have
undervalued the upper bounds of its fairness opinion. That is, adjusting for the errors
would not contradict Credit Suisse‘s expert opinion that any price above $6.78 would be
Second, although Credit Suisse‘s March 2011 analysis contained errors, the
See BVF‘s Ans. Br. 34 n.177 (itemizing confidential, successive, and declining
valuations for Cat-K between February 2010 and March 2011).
Thomas Aff., D.I. No. 128 Ex. 29, at CSRA00032067 n.1, CSRA00032073.
analyses it presented to the Board in February 2011 correctly applied the Tufts Study‘s
probability of success rates.183 Therefore, when the Board determined in February 2011
that Quest‘s offer of $8 per share was acceptable, it had not been exposed to Credit
In these circumstances, I accord only minimal weight to the claim for monetary
relief based on the Board‘s apparent reliance on a flawed probability adjustment for five
or so drug products in Celera‘s pipeline. Even in view of the evidence presented by BVF,
it seems unlikely that a stockholder could show that the Board acted disloyally or in bad
faith in approving the challenged transaction.
Sufficiency of the market check and commitment to a whole-company sale
Plaintiffs and BVF characterized the Board‘s sales process as rushed and
inadequate, accusing it of ―failing to conduct a market check on Quest‘s January 2011
offer [or] . . . to seriously investigate the potential merits of selling the Company in parts
rather than as a whole.‖184 Defendants take issue with that characterization, asserting that
the Board engaged in a seventeen-month sales process from November 2009 to March
2011, accepted the highest bid offered, achieved a 28% premium for Celera stockholders,
considered all options, and had legitimate business reasons for preferring a wholecompany transaction.185
Thomas Aff., D.I. No. 128 Ex. 29, at CSRA00032045 n.2.
BVF‘s Ans. Br. 39.
Hr‘g Tr. 106-07; Defs.‘ Reply Br. 1, 4 n.2.
There is, at least, some merit to both sides‘ respective positions. For example,
rather than one extensive sales process, the Board‘s efforts reasonably could be
characterized as a series of attempted and aborted negotiations. In that regard, the market
could have assumed that Celera‘s willingness to sell itself in late 2009 and early 2010 had
become stale by the time Quest made its successful offer in January 2011. If so, a
reasonable board might have considered reinitiating contact with past bidders, or the
market generally, to determine if there was any renewed interest in the Company.
Nevertheless, Revlon does not impose ―a judicially prescribed checklist of sales
activities. . . . The mere fact that a board did not, for example, do a canvass of all possible
acquirers before signing up an acquisition agreement does not mean that it necessarily
acted unreasonably.‖186 Here, for example, the Board appears to have accumulated a
wealth of information about the Company‘s inherent value and the state of the market
from the numerous valuation studies it had received in 2010 and early 2011.187
Alternatively, because the Board knew BVF would oppose the deal‘s terms,188 it may
have expected that such decentralized and vocal shareholder dissent would uncover any
In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 192 (Del. Ch. 2007) (footnotes
Compare Barkan, 567 A.2d at 1287 (―When . . . directors possess a body of reliable
evidence with which to evaluate the fairness of a transaction, they may approve that
transaction without conducting an active survey of the market.‖) with In re Netsmart, 924
A.2d at 195 n.76 (―[W]hen they do not possess reliable evidence of the market value of
the entity as a whole, the lack of an active sales effort is strongly suggestive of a Revlon
breach.‖ (emphasis omitted)).
See supra note 9 and accompanying text.
possible topping bids. In fact, BVF‘s vocal dissent caused Black Horse publicly to
express an interest in the transaction, although it ultimately did not top Quest‘s offer.
Nor does the Black Horse offer, or Bidder C‘s offer to acquire the products
division, demonstrate necessarily that the Board acted unreasonably by selling the
Company as a whole. Cat-K was one of Celera‘s most promising assets, if not the most
promising, yet Black Horse offered only $2.50 per share to acquire it. Similarly, Bidder
C‘s offer to acquire the products division was in the range of $1.75 per share.189 Selling
off these assets piecemeal could have made it more difficult for Celera to attract interest
in its remaining, less valuable business lines. It also could have left the Company in a
―financially . . . weaker and riskier‖ position in the interim.190 In any case, Plaintiffs‘
claims would require an evaluation of the reasonableness of the Board‘s conduct in light
of the information available to it in this regard, which would involve a fact-intensive
analysis and, most likely, an uncertain outcome.
Fiduciary duty claims against Ordoñez
In addition to their claims against the Board as a whole, Plaintiffs asserted claims
against Ordoñez in her capacity as an officer. ―[O]fficers of Delaware corporations, like
directors, owe fiduciary duties of care and loyalty, and . . . the fiduciary duties of officers
Bidder C‘s offer of $125 to $145 million, divided by the 82 million shares of Celera stock
then outstanding, equates to an implied offer of $1.52 to $1.77 per share.
Ordoñez Dep. 104.
are the same as those of directors.‖191 In Gantler v. Stephens, the Supreme Court held
that allegations that an officer intentionally ―sabotaged‖ a merger proposal when he was
self-interested in a competing proposal were sufficient to withstand a motion to dismiss
under Rule 12(b)(6) for failure to state a claim against that officer for breach of loyalty.192
Here, BVF claims that Ordoñez acted disloyally in two regards. First, the day
after attempting to negotiate a prospective employment agreement with Ordoñez in June
2010, Quest walked away from its earlier offer of $10.25 per share and cited among its
reasons concerns about the ―level of commitment Celera‘s senior management team was
prepared to make‖ to a post-acquisition company.193 Second, alleging that Ordoñez‘s job
as CEO was in ―jeopardy‖ in late 2010 and early 2011, BVF argues that ―Ordoñez had
every reason to ensure that a sale of the Company occurred, regardless of the price, with
Gantler v. Stephens, 965 A.2d 695, 708-09 (Del. 2009). Unlike with directors, ―there
currently is no statutory provision [like § 102(b)(7)] authorizing comparable exculpation
of corporate officers.‖ Id. at 709 n.37. In the case of a defendant who is both an officer
and a director, however, § 102(b)(7) cannot apply to ―actions taken solely in his [or her]
capacity as an officer,‖ but the exculpatory power of § 102(b)(7) may apply to the
officer-director‘s actions qua director. 1 R. Franklin Balotti & Jesse A. Finkelstein, The
Delaware Law of Corporations and Business Organizations § 4.13[B], at 4-97 (3rd ed.,
rev. vol. 2012) (emphasis added). In this case, NOERS and BVF have not attempted to
distinguish Ordoñez‘s allegedly wrongful acts as a director from those as an officer.
Accordingly, I presume that § 102(b)(7) continues to exculpate her from monetary
liability for any breaches of her duty of care. See Arnold v. Soc’y for Sav. Bancorp, 650
A.2d 1270, 1288 (Del. 1994) (§ 102(b)(7) barred claims where plaintiff failed to
distinguish between defendant‘s acts as director and officer); Goodwin v. Live Entm’t,
Inc., 1999 WL 64265, at *6 n.3 (Del. Ch. Jan. 25, 1999) (same), aff’d, 741 A.2d 16 (Del.
Gantler, 965 A.2d at 709.
Recommendation Statement at 17.
the buyer offering her continued employment.‖194 In sum, BVF insinuates that Ordoñez‘s
aggressive negotiation tactics in June 2010 effectively sabotaged a higher offer and, once
those tactics backfired on her, she deliberately sold out the Company to salvage what she
could of a fleeting opportunity.
Although such allegations arguably might state a claim under Gantler, it appears
unlikely from the record before me that a plaintiff could succeed on such a claim. As to
the June 2010 negotiations, the record does not convince me that Ordoñez did, in fact,
sabotage those negotiations. Quest was at least equally, if not more, concerned about the
imminent KIF6 paper.195 Indeed, the deterioration of Celera‘s stock price in late 2010
and early 2011 coincides with the publication of the negative KIF6 paper in October
2010. Regarding the second round of negotiations in January 2011, BVF‘s allegation that
Ordoñez‘s job was in ―jeopardy‖ arguably supports a reasonable inference that she
championed a deal with Quest for improper reasons.
Still, the record does not
corroborate that allegation. There is some evidence that the Board criticized Ordoñez‘s
management style as too supportive of her employees and not sufficiently ―hardnosed.‖
There also is evidence of the Board‘s concern about her limited experience on some
business matters. But, the Board appears to have offered these criticisms in the vein of
constructive feedback and to have appreciated Ordoñez‘s talents in the science and
BVF‘s Ans. Br. 29.
Recommendation Statement at 17 (mentioning concerns about the KIF6 study before
concerns with management); Cook Aff., D.I. No. 147 Ex. 5, at 78-79 (Mohapatra
deposition, indicating that ―KIF6 was a major factor‖ causing Quest to lower its offer).
regulatory sides of the business.196 These mixed messages do not indicate that Ordoñez‘s
job was in jeopardy or suggest that she necessarily acted disloyally at any point during
the negotiations with Quest. Furthermore, as indicated supra, there is no evidence that
Ordoñez exerted improper influence over the majority of outside directors who ultimately
approved the Merger Agreement. Whatever Ordoñez‘s faults as a CEO, the record
provides no convincing support for a claim that she is a bad actor who intentionally
sabotaged the Company‘s efforts to maximize shareholder value.
Claims against Credit Suisse
Finally, BVF asserts that at least two of its released claims against Credit Suisse—
(1) aiding and abetting the Board‘s breaches of fiduciary duty and (2) securities fraud
under § 14(e) of the Securities Exchange Act of 1934197—are particularly valuable.
Aiding and abetting
―A third party may be liable for aiding and abetting a breach of a corporate
fiduciary‘s duty to the stockholders if the third party ‗knowingly participates‘ in the
breach.‖198 As indicated supra, I doubt that BVF could have supported a claim that the
Board breached its fiduciary duty of loyalty. In this regard, however, ―Sections 102(b)(7)
and 141(e) do not protect aiders and abetters, and disgorgement of transaction-related
Cook Aff., D.I. No. 147 Ex. 3, at 144-55 (Green deposition, synthesizing comments
received from the Board, management, and outsiders during review of Ordoñez‘s
performance at Celera).
15 U.S.C. § 78n(e).
Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001).
profits may be available as an alternative remedy.‖199 Thus, the aiding and abetting claim
for money damages against Credit Suisse may remain viable even if the Board breached
only its duty of care. Still, the element of ―knowing participation‖ makes ―[t]he standard
for an aiding and abetting claim . . . a stringent one, one that turns on proof of scienter of
the alleged abettor.‖200
BVF asserts that ―Credit Suisse knew its [financial analysis] was questionable.‖201
To support that assertion, BVF relies on three emails written in February 2011 by Mark
Page, the leader of Credit Suisse‘s transaction team. In the first, dated February 2, Page
wrote that he was ―seriously considering going to a simple whole company [DCF
analysis] rather than sum of the parts,‖ which would show only ―nominal cash flows‖ if
the Company insisted on including various drug assets in the analysis. 202 On February
22, he wrote two more emails arguably supportive of BVF‘s claim. In one, he asked his
team to ensure that all of the assumptions relating to a particular drug were accurate
because he did ―not want to spring this on‖ the ―committee.‖203 In the other, he said that
the weighted average cost of capital assumptions, which are used to calculate the
Del Monte I, 25 A.3d at 838.
Binks v. DSL.net, Inc., 2010 WL 1713629, at *10 (Del. Ch. Apr. 29, 2010).
BVF‘s Ans. Br. 33.
Thomas Aff., D.I. No. 130 Ex. 66, at CSCRA00011555.
Thomas Aff., D.I. No. 130 Ex. 67, at CSCRA00011817.
applicable discount rate for a DCF analysis, for that same drug ―should be high . . . in
case our Tufts framework approach is not appreciated by IBC.‖204
The acronym ―IBC‖ stands for ―Investment Banking Committee,‖ the same
―committee‖ to which Page referred in his first February 22 email. 205 Page testified that,
―before we ever actually put a presentation in front of our clients in the board situation,
we have to go through an internal committee,‖206 and, in Celera‘s case, Page brought his
team‘s analysis to Credit Suisse‘s IBC ―at least in excess of six or seven times.‖ 207 Thus,
to whatever extent these emails arguably support a claim that Page and his team
attempted to manipulate their valuation of Celera, they equally could reflect no more than
an internal debate within Credit Suisse (either between members of Page‘s team or
between Page‘s team and the IBC) about the proper approach, assumptions, and metrics
to employ in conducting an expert financial analysis. Having considered the evidence
and arguments presented by BVF, I am not convinced that these emails constitute some
type of ―smoking gun‖ or otherwise are sufficient to overcome the stringent scienter
element of an aiding and abetting claim. Therefore, BVF‘s contention that this claim
should not be settled on the terms provided in the Settlement Agreement is unpersuasive.
Thomas Aff., D.I. No. 130 Ex. 68, at CSCRA00011825.
Thomas Aff., D.I. No. 129 Ex. 30, at 172 (defining ―IBC‖) [hereinafter Page Dep.];
Thomas Aff., D.I. No. 130 Ex. 67, at CSCRA00011817.
Page Dep. 123.
Page Dep. 131.
Finally, BVF asserts that it has a valuable claim for money damages against Credit
Suisse for violation of § 14(e) of the Securities Exchange Act of 1934, which prohibits,
among other things, making ―any untrue statement of a material fact . . . in connection
with any tender offer.‖208
According to BVF, Celera stated falsely in the
Recommendation Statement that Credit Suisse employed the probability adjustments
supplied by the Tufts Study and, because Credit Suisse allegedly participated in the
preparation of the Recommendation Statement, Credit Suisse may be liable for that false
In assessing the value of this claim, I note at the outset an apparent circuit split
regarding the elements of an actionable claim under § 14(e). The Ninth Circuit, for
example, requires only (1) the misstatement of a material fact (2) in connection with a
tender offer.209 The Second, Third, and Fifth Circuits further require ―proof of scienter,
i.e., ‗a mental state embracing intent to deceive, manipulate, or defraud.‘‖210 In either
case, however, the strength of this claim is limited by the uncertainty, discussed supra,
regarding the materiality of Credit Suisse‘s misapprehension of the Tufts Study and the
extent to which it knew that it had misapplied the Tufts Study probability adjustments.
15 U.S.C. § 78n(e).
Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1167 (9th Cir. 2009).
In re Digital Island Sec. Litig., 357 F.3d 322, 328 (3d Cir. 2004) (quoting Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 193 n.12 (1976)) (citing Conn. Nat’l Bank v. Fluor Corp.,
808 F.2d 957, 961 (2d Cir. 1987) and Smallwood v. Pearl Brewing Co., 489 F.2d 579,
605 (5th Cir. 1974)). Additionally, plaintiffs in the Second Circuit must show
detrimental shareholder reliance. Lewis v. McGraw, 619 F.2d 192, 195 (2d Cir. 1980).
Therefore, it would be at least as difficult to prove this securities fraud claim as it would
be Plaintiffs‘ fiduciary duty and aiding and abetting claims.
Does the settlement reflect a fair exchange?
On balance, I find that the benefits secured by the Settlement Agreement outweigh
the costs it imposes on the class. Admittedly, the benefits are relatively modest, viz.,
therapeutic modifications of the deal terms and a handful of supplemental disclosures.
But, these benefits provided stockholders the opportunity to receive a superior offer for
their shares and remedied, at least in part, many of Plaintiffs‘ claims of a defective sales
process. On the cost side of the scale, Plaintiffs‘ released claims for money damages
against the Board, Ordoñez, and Credit Suisse are either weak, difficult to prove, or both.
Plaintiffs have asserted that, once Defendants waived the Don‘t-Ask-Don‘t-Waive
Standstills, ―Plaintiffs‘ ability to succeed on the remaining claims was highly uncertain.
. . . While Plaintiffs could have continued litigating this case through an injunction
proceeding, the Class very well may have received nothing.‖ 211
conforms to my own independent business judgment that the benefits provided and
claims extinguished by the proposed settlement reflect a fair, adequate, and reasonable
As a final matter, BVF argues that the Settlement Agreement is presumptively
unreasonable because Plaintiffs‘ counsel already has breached it.212 Specifically, BVF
Pls.‘ Reply Br. 14.
Hr‘g Tr. 59-60.
notes that Plaintiffs‘ counsel ―represent[ed] and warrant[ed] that one or more of their
respective clients have been stockholders of Celera throughout the Settlement Class
Period,‖213 defined as ―February 3, 2010, through and including May 17, 2011.‖214 As
previously discussed, NOERS sold its shares before May 17. Nevertheless, that fact does
not amount to a breach of the Settlement Agreement. While the Settlement Agreement
identifies NOERS as the ―Delaware Lead Plaintiff,‖215 counsel represented only that one
or more of their ―clients‖ held Celera shares until May 17. In this context, the term
―clients‖ would include, at least, any of the putative lead plaintiffs who filed one of the
three class action complaints that were consolidated into this action. Furthermore, one of
those plaintiffs, Ariel Holdings LLC, submitted an affidavit swearing that it held its
Celera stock until May 17.216 Hence, BVF‘s argument in this regard is without merit.
For the foregoing reasons, in the exercise of my independent business judgment, I
approve the Settlement Agreement as fair, adequate, and reasonable.
―[A] litigant who confers a common . . . benefit upon an ascertainable stockholder
class is entitled to an award of counsel fees and expenses for its efforts in creating the
benefit.‖217 Although counsel is entitled to an award of attorneys‘ fees even where the
Settlement Agreement § 37.
Id. § 1(m) (emphasis added).
Id. Recital G, at 5.
Khaghan Aff., D.I. No. 165 Ex. D, at ¶ 2.
United Vanguard Fund, Inc. v. Takecare, Inc., 693 A.2d 1076, 1079 (Del. 1997).
benefit created is nonmonetary,218 the goal is ―to avoid windfalls to counsel while
encouraging future meritorious lawsuits.‖219 In that regard, the reviewing court retains
discretion to determine the reasonable amount of a fee award,220 guided by the following,
well-known Sugarland factors:
(i) the amount of time and effort applied to the case by
counsel for the plaintiffs; (ii) the relative complexities of the
litigation; (iii) the standing and ability of petitioning counsel;
(iv) the contingent nature of the litigation; (v) the stage at
which the litigation ended; (vi) whether the plaintiff can
rightly receive all the credit for the benefit conferred or only a
portion thereof; and (vii) the size of the benefit conferred.221
Among these factors, the last two receive the greatest weight.222
Here, Plaintiffs‘ counsel seek an award of their fees and expenses in the aggregate
amount of approximately $3.6 million. Defendants contend that the modest benefits
conferred by the Settlement Agreement compel a fee of no more than $1 million. In
addition, Defendants contend that Plaintiffs‘ counsel‘s expenses are excessive in that they
include the redundant efforts of seven different plaintiffs firms and over 100 lawyers and
other professionals who billed time on this matter. Accordingly, Defendants ask the
Court to award only that portion of the more than $100,000 in expenses claimed that was
necessary for the prosecution of this action.
Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1165 (Del. 1989).
In re Cox Radio, 2010 WL 1806616, at *20.
In re Abercrombie & Fitch Co. S’holders Deriv. Litig., 886 A.2d 1271, 1273 (Del. 2005).
In re Plains Res. Inc. S’holders Litig., 2005 WL 332811, at *3 (Del. Ch. Feb. 4, 2005)
(citing Sugarland Indus., Inc. v. Thomas, 420 A.2d 142, 149-50 (Del. 1980)).
The benefit conferred by modifying the deal terms
―The benefit generated from modifying deal protections is easy to conceive but
difficult to quantify.‖223 As a theoretical matter, loosening deal protection devices makes
topping bids more likely.
Thus, one may conceptualize the economic value of
therapeutic benefits as (x) the increased likelihood of a topping bid due to the deal
modifications multiplied by (y) the likely incremental value of such a bid.224
Theoretically, once the reviewing court derives a dollar value of the therapeutic benefit
itself, it then can determine the percentage of that value the plaintiffs‘ counsel deserve for
As observed in In re Compellent Technologies, Inc. Shareholders
Litigation, ―[t]he calculation does not aspire to mathematical exactitude. To predict
accurately how alternative takeover scenarios might play out is impossible.
calculation only serves to help establish an order of magnitude within which this Court
can craft an appropriate award.‖226
In this case, the parties did not submit—nor did the Court request—empirical data
from which to estimate values for the (x) and (y) inputs identified above. Rather, the
Court relies on the fee awarded in In re RehabCare Group, Inc. Shareholders
In re Compellent Techs., Inc. S’holder Litig., 2011 WL 6382523, at *19 (Del. Ch. Dec. 9,
See id. at *19-21.
Id. at *25.
Id. at *20 (citation and footnote omitted).
Litigation227 as a comparable precedent. That case concerned a challenge to a roughly
$900 million acquisition. The settlement, among other things, reduced a termination fee
from $26 million to $13 million (i.e., from 2.9% to 1.4% of equity value), eliminated a
matching rights provision, and released eight financial buyers from standstill agreements,
which contained don‘t-ask-don‘t-waive provisions similar to those challenged here.228
Also as in this case, the defendant company had been shopped for several months before
a deal was announced and, although eight prospective bidders were constrained by the
standstills, no other alternative bidders emerged between the deal‘s public announcement
and the settlement.229
Under those circumstances, the court determined that the
therapeutic benefits reasonably could have increased the likelihood of a topping bid by
approximately 2%, and the incremental increase of such a topping bid would have been
in the range of $50 to $100 million.230
There are, however, a handful of differences between RehabCare and this case.
First, the termination fee in RehabCare already was less than 3% of the aggregate deal
size. Here, Plaintiffs‘ counsel achieved a reduction from approximately 3.5% of the total
deal size, which is at the high end of the generally acceptable range,231 to around 2.3%.
Therefore, the reduction Plaintiffs‘ counsel achieved probably made a topping bid
C.A. No. 6197-VCL (Del. Ch. Sept. 8, 2011) (TRANSCRIPT).
Id. at 4, 46.
Id. at 31-32.
Id. at 43-44.
See In re Cogent, Inc. S’holder Litig., 7 A.3d 487, 503 & nn.44, 47 (Del. Ch. 2010).
slightly more likely than it did in RehabCare. Furthermore, as indicated supra, it is
debatable whether Celera‘s market canvas should be viewed as one uninterrupted,
Thus, in my judgment, the probability that the reduced
Termination Fee and other therapeutic benefits would lead to a topping bid under the
circumstances of this case would be a bit higher. As such, I have used a figure of 4%.
Lastly, the deal size in this case was approximately 75% of the total deal size involved in
RehabCare, $680 million here compared to $900 million there. Accordingly, I have
reduced proportionally the $50-100 million input employed in RehabCare to something
in the range of $40 to $75 million. Employing these revised inputs, I estimate the value
of the therapeutic benefits the class received in this case as approximately $1.6 million to
I next consider the appropriate percentage of the therapeutic benefits that counsel
should receive. ―When a case settles after the plaintiffs have engaged in meaningful
litigation efforts, typically including multiple depositions and some level of motion
practice, fee awards range from 15-25% of the monetary benefits conferred.‖232 In this
case, Plaintiffs‘ counsel conducted expedited discovery during a fast-paced transaction,
deposed eight witnesses, prepared and submitted a preliminary injunction brief, and
settled on the eve of a preliminary injunction hearing. Accordingly, a fee award of 25%
In re Emerson Radio S’holder Deriv. Litig., 2011 WL 1135006, at *3 (Del. Ch. Mar. 28,
of the therapeutic benefits conferred, or something in the range of $400,000 to $750,000,
is reasonable under these circumstances.
The benefit conferred by the supplemental disclosures
To provide a compensable benefit, the supplemental disclosures obtained must be
material to stockholders.233 A disclosure is ―material‖ if there is ―a substantial likelihood
that the disclosure of the omitted fact would have been viewed by the reasonable investor
as having significantly altered the ‗total mix‘ of information made available.‖ 234 Even
where a supplemental disclosure is material, however, ―[a]ll supplemental disclosures are
not equal. To quantify an appropriate fee award, this Court evaluates the qualitative
importance of the disclosures obtained.‖235 In past settlements,
[t]his Court has often awarded fees of approximately
$400,000 to $500,000 for one or two meaningful disclosures,
such as previously withheld projections or undisclosed
conflicts faced by fiduciaries or their advisors. Disclosures of
questionable quality have yielded much lower awards.
Higher awards have been reserved for plaintiffs who obtained
particularly significant or exceptional disclosures.236
Unlike the benefit conferred by modifications to deal protection devices, the value of
supplemental disclosures generally does not vary with deal size.237
In re Sauer-Danfoss Inc. S’holders Litig., 2011 WL 2519210, at *8 (Del. Ch. Apr. 29,
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v.
Northway, Inc., 426 U.S. 438, 449 (1976)).
Sauer-Danfoss, 2011 WL 2519210, at *17.
Id. at *18 (citations omitted).
RehabCare, C.A. No. 6197-VCL, tr. at 44 (Del. Ch. Sept. 8, 2011).
As noted in Part II.B.2.b, supra, at least two of the supplemental disclosures
related to Credit Suisse‘s DCF analysis—i.e., the drug-specific cash flow projections and
the uncommon, though apparently justified, treatment of stock-based compensation—
were significant in the circumstances of this case. Taken together, those disclosures are
sufficiently meaningful to merit a fee in the range of $400,000 to $500,000.
At least two other supplemental disclosures were meaningful in the circumstances
of this case. First, whereas the Recommendation Statement disclosed only the fact that
Credit Suisse had factored the Company‘s net operating losses into the DCF analysis, the
Supplemental Disclosure discloses the annual dollar amount of these tax savings and that
they would be fully utilized by 2017.238 Second, in addition to the DCF analysis, Credit
Suisse performed a Selected Companies Analysis and a Selected Transactions Analysis.
As to these Analyses, the initial Recommendation Statement disclosed: (1) the specific
companies and transactions Credit Suisse identified as comparable to Celera and to a
Celera-Quest deal, respectively; (2) the particular market multiples compared; and (3) a
range of the implied per share value of Celera derived by applying those market multiples
to Celera‘s financial information. It also disclosed that Credit Suisse used only publicly
available financial data as to both the comparable companies and Celera.239
The aggregate dollar value of these tax savings is $72.4 million. Supplemental
Disclosure at 4. Discounted to net present value, and assuming the same discount rates as
Credit Suisse employed throughout its DCF analysis, these tax savings amount to
something in the range of $43.7 million to $46.5 million, or approximately 6-7% of the
$680 million transaction size.
See Recommendation Statement at 34-36.
Recommendation Statement did not disclose, however, the numeric value of the market
multiples derived for the comparable companies or transactions.
The Supplemental Disclosure, by contrast, included charts of illustrative ranges of
the various market multiples Credit Suisse derived—specifically, the high, low, median,
and mean multiples.240 These charts concisely and clearly conveyed the heart of Credit
Suisse‘s Selected Companies and Selected Transactions Analyses, but they did not,
contrary to Plaintiffs‘ assertion, ―add important information.‖241 The supplemental
charts compiled information that already was publicly available; therefore, it is
questionable whether they altered the ―total mix‖ of available information. Nevertheless,
as a matter of best practices, a fair summary of a comparable companies or transactions
analysis probably should disclose the market multiples derived for the comparable
companies or transactions.242 Accordingly, despite the fact that the Selected Companies
and Selected Transactions Analyses comprised only public companies, I consider the
benefit of the supplemental disclosures regarding them to be compensable.
Although these latter two supplemental disclosures are meaningful and
compensable, their quality is more questionable than those discussed in Part II.B.2.b,
supra. Accordingly, I find that a fee of $150,000 is appropriate for counsel‘s efforts in
See Supplemental Disclosure at 2-3.
Pls.‘ Op. Br. 15 (emphasis added).
Turberg v. ArcSight, Inc., C.A. No. 5821-VCL, tr. at 43 (Del. Ch. Sept. 20, 2011) (―[I]f
you were to consider what really constitutes a fair summary, then the background
multiples should be in there, just like they‘re in there when you give them to the board.
. . . [Y]ou would never see a board book that would go to the board without the
obtaining them. The remaining supplemental disclosures, however, are of lesser quality.
Without going through an extended discussion and evaluation of each and every
supplemental disclosure, I note a salient example.
The Recommendation Statement
contained an apparent clerical error in that it stated that Credit Suisse‘s DCF analysis had
discounted the Company‘s projected cash flows through 2015, whereas the Supplemental
Disclosure clarified that the analysis involved discounting cash flows through 2014 and
using the 2015 projections to calculate the Company‘s terminal value.243 This sort of
increasingly detailed disclosure has limited significance and is probably immaterial.
Therefore, neither it nor any of the remaining disclosures that have not been discussed
merits further consideration.
Collectively, therefore, I conclude that an award of $550,000 to $650,000 provides
reasonable compensation for the supplemental disclosures obtained in this action.
The time and effort of counsel
―The time and effort expended by counsel serves [as] a cross-check on the
reasonableness of a fee award.‖244
Plaintiffs‘ counsel devoted 4,748.45 hours to
prosecuting this case.245 Assuming a total fee award of between $950,000 and $1.4
million (i.e., accounting for both the therapeutic changes and supplemental disclosures),
the imputed hourly rate for the time Plaintiffs‘ counsel billed to this case falls somewhere
in the range of $200 to $300. This implied hourly rate is significantly less than Plaintiffs‘
Recommendation Statement at 36; Supplemental Disclosure at 4.
Sauer-Danfoss, 2011 WL 2519210, at *20.
Pls.‘ Op. Br. 30 n.8.
counsel‘s normal hourly billing rates, generally in the range of $400 to $500.246 In that
regard, however, I note that the proffered number of hours includes time spent up to and
including October 4, 2011, which is well after the MOU was executed on April 18, 2011.
The post-MOU hours, at best, only tangentially relate to the benefits conferred by the
settlement and for which an award of attorneys‘ fees is justified in the first instance.247 In
any event, nothing about the time spent by counsel causes me to question the
reasonableness of the fee award previously discussed.
Defendants also contend that the expenses Plaintiffs‘ counsel incurred, which
exceeded $100,000, resulted from unnecessarily duplicative efforts by the various
Plaintiffs‘ firms involved in this matter. Therefore, Defendants urge the Court to allow
reimbursement of only that portion of those expenses that Plaintiffs needed to incur.
Having already allocated a significant amount of the Court‘s—and taxpayers‘—resources
to this settlement, the Court declines to entangle itself further in any attempt to parse
―necessary‖ from ―unnecessary‖ expenses.
Plaintiffs‘ counsel represented that the time they expended equates to a lodestar of
approximately $2.1 million. That lodestar, divided by the 4,748.45 hours billed, amounts
to an implied hourly rate of approximately $440.
Furthermore, at least some of the time spent from late August through early October 2011
relates to BVF‘s objection to certification of NOERS as lead plaintiff and related
discovery requests. Had NOERS and its counsel more diligently monitored NOERS‘s
trading practices during the course of this litigation, such wasteful expenditures of
Plaintiffs‘ counsel‘s time could have been prevented.
Based solely on the hours expended before the MOU, the implied hourly rate would be in
the range of approximately $225 to $330.
Rather, I consider it more productive and principled to treat the reimbursement of
expenses as being subsumed within the analysis of Plaintiffs‘ counsel‘s request for
attorneys‘ fees. Such an approach provides a better incentive to counsel to manage their
litigation expenses efficiently.248 Using that approach and for reasons discussed above,249
I award Plaintiffs‘ counsel their attorneys‘ fees and expenses at the upper end of the
range that I have identified as reasonable, namely, $700,000 for the therapeutic changes
and $650,000 for the supplemental disclosures, for a total of $1.35 million.
For the reasons stated in this Opinion, I (1) certify the class under Rules 23(a),
(b)(1), and (b)(2) with NOERS as class representative; (2) deny BVF‘s request to certify
the class on only an opt out basis; (3) approve the settlement as fair and reasonable; and
(4) award attorneys‘ fees to Plaintiffs‘ counsel in the amount of $1,350,000, inclusive of
expenses. An Order implementing these rulings is being entered concurrently with this
See Brinckerhoff v. Tex. E. Prods. Pipeline Co., 986 A.2d 370, 395 (Del. Ch. 2010) (―As
[now] Chancellor Strine has explained, an all-in award is more straightforward for the
Court and incentivizes counsel to be efficient with expenses.‖ (citing In re Telecorp PCS,
Inc. S’holders Litig., C.A. No. 19260 (Del. Ch. Nov. 19, 2003) (TRANSCRIPT))).
None of the remaining Sugarland factors—the relative complexities of the litigation, the
standing and ability of counsel, the contingent nature of the litigation, or the stage at
which the litigation ended—warrants an upward or downward adjustment to the
attorneys‘ fees amounts derived from my analysis of the size of the benefits conferred.
This putative class action was before the court on an application for the approval of settlement of the class's claims for, among other things, breaches of fiduciary duty in connection with a merger of two publicly traded Delaware corporations. The target's largest stockholder, which acquired the vast majority of its shares after the challenged transaction was announced, objected to the proposed settlement. In addition, defendants' and plaintiffs' counsel disagreed about the appropriate level of attorneys' fees that should be awarded. The court certified the class under Rules 23(a), (b)(1), and (b)(2) with NOERS as class representative; denied BVF's request to certify the class on only an opt out basis; approved the settlement as fair and reasonable; and awarded attorneys' fees to plaintiffs' counsel in the amount of $1,350,000, inclusive of expenses.Receive FREE Daily Opinion Summaries by Email